WSE: FOREVER ENTERTAINMENT - ANALYTICAL REPORT - SUMMARY
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Forever Entertainment's results for 4Q'22, at the level of adjusted EBITDA and net profit, turned out to be significantly better than our expectations, and the company achieved record figures throughout 2022 (adjusted EBITDA of PLN 15.0 million, which is +582% y/y, and net profit of PLN 11.9 million, which is +659% y/y). The company enters the current year with advanced productions of many remakes. In 2023, we expect debuts of titles such as "FM2,", "PD2", „Shadowgate 2” and "Fear Effect: Reinvented." Considering the high density of significant premieres, we expect FOR to significantly scale its results. We forecast that the company will achieve a net profit of PLN 19,3 million (+62% y/y) throughout 2023, which translates into an attractive P/E ratio of 7x. With this in mind, we maintain our BUY recommendation for Forever Entertainment, setting a target price of 6,8 PLN per share, which is 41% above the current market price.
Good results for 4Q'22
Forever Entertainment's results for 4Q'22 at a adjusted EBITDA and net profit level turned out to be significantly better than our expectations. Throughout the discussed quarter, the company generated PLN 9.5 million in revenue (+82.3% y/y), of which PLN 8.9 million was from the sale of product (an increase of 92.6% y/y), which was close to our forecasts. The biggest impact on the company's revenue growth in 4Q'22 was the release of the game "FRONT MISSION 1st: Remake" (according to our estimates, it sold about 50,000 copies exclusively on NS in the quarter) and the sales of "THE HOUSE OF THE DEAD: Remake" released during 2022 (on all major platforms). We were positively surprised by the operating expenses (PLN 7.0 million), especially the cost of external services (PLN 4.7 million), which were lower than our forecasts. The company's EBIT for 4Q'22 was PLN 2.5 million (compared to a loss of PLN 1.7 million in 4Q'21), while the adjusted EBIT was PLN 5.2 million. The company's EBITDA for the period was PLN 2.6 million (compared to a loss of PLN 1.4 million in 4Q'21), with adjusted EBITDA reaching PLN 5.3 million. The net profit for the last quarter of 2022 amounted to PLN 1.6 million (compared to a net loss of PLN 1.6 million in 4Q'21), while the adjusted net profit was PLN 3.8 million.
A vision of an intense 2023 and further scaling of the business
The company entered 2023 year without major premieres, but from this perspective, 2Q23 looks much more interesting. Magical Drop 6 was released on April 25th and in a few weeks Front Mission 2: Remake will hit the market (as we indicated in our last recommendation, the publisher ventured into a new type of sales campaign for this IP by releasing subsequent parts in intervals of only six months). Considering the information included in the annual report and statements from the management regarding the progress of individual productions, we expect that the company will release 5 more remakes this year, including "Panzer Dragoon 2", "The House of The Dead 2", "Fear Effect: Reinvented", "Night Slashers: Remake" and "Shadowgate 2". Given such a dense schedule of important premieres, we expect that FOR will significantly scale up its results. We forecast that in whole 2023 the company will generate PLN 76.6 million in revenue (+70% y/y), PLN 23.7 million in EBIT (+64% y/y), and PLN 19.3 million in net profit (+62% y/y).
Continuation of sharing profits with shareholders
After publishing the annual results, the company announced its intention to recommend a payment of 0.1 PLN dividend per share from the 2022 profit. For this purpose, 2.7 million PLN from last year's profit of 9.7 million PLN will be used (DY = 2.1%). This will be the second time in the history of Forever Entertainment that the company will pay a dividend. We expect the company to continue sharing its profits with shareholders in the coming years. With the expected progression of results in 2023, we anticipate an increase in DPS to 0.2 PLN.
Further development plans of the company
We would like to point out that Forever Entertainment is preparing to develop further projects and obtain new IPs that, in the company's assessment, significantly exceed the sales potential of the titles disclosed so far. In addition, FOR hopes that with the release of the game "Fear Effect Reinvented" it will show potential partners that apart from working on remakes, it can also create game from scratch based on licenses (eg in the same way as in the case of "Resident Evil 2").
Main risks: 1) Risk related to strategic goals 2) Risk related to the possibility of not obtaining the necessary concessions and licenses 3) The risk related to possible delays in game production 4) Risk related to the loss of key employees 5) Risk related to difficulties in acquiring experienced employees 6) The risk related to the possible failure of IT systems, telecommunications infrastructure and servers 7) The risk related to the competitive environment 8) Risk related to the development of new technologies and industry 9) Risk of volatility of foreign exchange rates
Krzysztof Tkocz
tel. (+48) 516 086 705
Dom Maklerski BDM S.A.
ul. 3-go Maja 23, 40-096 Katowice
