Creativeforge Games - Analytical Report - Summary
Aa
Share
The report was prepared by Dom Maklerski BDM at the request of the WSE as part of the Exchange's Analytical Coverage Support Programme
HOLD
(PREVIOUS: BUY)
TARGET PRICE 9,1 PLN
28 OCTOBER 2022, 11:30 CEST
Decisions regarding the game "Stargate: Timekeepers", which have recently been made on the line Slitherine Software (publisher) - CFG (producer) and the company's communication about the ongoing optimization activities of production / teams, which, in addition to the lack of potential profits from the sale of the game, in our opinion imply significant changes in the functioning of the developer. Bearing the above information in mind, we think that the company intends to deviate from cooperation with publishers in its strategy and limit the number of simultaneous projects. We think that CFG will focus on fewer projects than before, which is implied in our model and which has a large impact on lowering our valuation. Moreover, we are disappointed with the premiere of the game "Aircraft Carrier Survival", which, despite the promising start (return of costs in 24 hours, sale of 20 thousand pieces in 72 hours), significantly differs from our expectations. Additionally, due to the expected significant changes in the operation of the group, we assume that most of the production has been delayed. Having regard to the above-mentioned arguments we are downgrading our recommendation from BUY to HOLD, setting our target price at PLN 9.1/share, which is 0,3% below the current market price.
Loss of „Stargate: Timekeepers", ...
At the beginning of September '22, CFG announced plans to establish a new company, Slitherine Poland (in which both parties will have shares), with Slitherine Software. New comapny will be responsible for the titles "Stargate: Timekeepers" and "Ancient Arenas: Chariots" on which CreativeForge has worked. Planned actions are to be taken by the end of 2022. We think that this means lack of proceeds from advance payments for the production and sales of the most important game in the CFG group. The direct financial benefit in this case may only be the payment of dividends by the established company or the sale of shares. On the other hand, we do not expect the advance payments received by CFG for the production of this game to be returned.
…and its impact on the company's business model
We think that the above decisions made by Slitherine Software (publisher) - CFG (producer) may result from "undeliverd" expectations regarding the quality of the game and the optimization of the cost of further production. In addition, in the last report, the company communicated about ongoing activities aimed at maximizing the efficiency of production teams, optimizing production and team management. With the above information in mind, we think that the company intends to leave in its strategy of cooperation with publishers and limit the number of simultaneous projects. We think that CFG will focus on a smaller number of projects than before, which is implied in our model and which has a large impact on lowering our valuation (we describe more in the chapter ("change of assumptions").
The premiere of "Aircraft Carrier Survival" leaves much to be desired
The game debuted on April 20, 2022 and it was the first self-premiere of the company's new team, after CFG in 2019 has undergone thorough transformation. The first hours of "ACS" looked promising, the game reached a 24h peak of 2.3 thousand. people and climbed to the third bestselling games on Steam (with ratings at 77% positive). A few days later, the company announced the return of production, testing, location and marketing costs within 24 hours of the debut (they did not exceed PLN 0.4 million) and the sale of 20 thousand. copies in 72h. Unfortunately, the drop in ratings and mixed opinions from players (currently only 62% of positives, link) translated into a slump in the sales of "ACS". We estimate that approx. 40,000 copies was sold, and a year from the premiere, we forecast 48 thousand. units, which is far from our previous expectations (99 thousand). In addition, the game, less than 6 months after the premiere, is sold at a discount of 55%
Further perspective of this year
Due to the expected significant changes in the functioning of the group, we assume that most of the production has been delayed, thus we shift most of the games forecast for this year to 2023. In addition, given the reduction in employment, we assume that some of the ongoing projects will be suspended. On the other hand, we are counting on large related savings with the running of these projects. Throughout 2022, we forecast PLN 4.4m in revenues, PLN 0.5m in EBIT and PLN 0.4m in net profit.
The perspective of 2023.
We expect that at the beginning of 2023 there will be premiers of games such as "Handyman Corporation", "Colonize", "My Hotel", and later next year we are counting on such titles as: "Builders of Greece", "House Flipper City", "Black Gold" or "Monsters Domain"
Main risks: 1) The risk of diversified and unforeseen demand for different products 2) The risk related to possible delays in game production 3) Risk related to the loss of key employees 4) Risk related to difficulties in acquiring experienced employees 5)The risk related to the possible failure of IT systems, telecommunications infrastructure and servers 6) The risk related to the competitive environment 7) Risk related to the development of new technologies and industry 8)Risk of volatility of foreign exchange rates 9) Risk of aging wishlists
Analyst: Krzysztof Tkocz
GPW’s Analytical Coverage Support Programme 3.0
