CI Games — Encouraging lead indicators and a robust Q1

CI Games (WSE: CIG)

Last close As at 18/05/2024

PLN1.86

0.06 (3.33%)

Market capitalisation

PLN341m

More on this equity

Research: TMT

CI Games — Encouraging lead indicators and a robust Q1

CI Games’ Q123 results were robust, given that revenue continues to be driven by its back catalogue as we await the release of its next headline game, Lords of the Fallen (LotF), which has now been confirmed for 13 October 2023. The group continues to generate positive EBITDA, despite a significant increase in marketing costs related to LotF and other operating expenses tied to its strategic pillars. Lead indicators are encouraging for LotF and momentum could continue to build with five to six major marketing beats planned before its launch. The group’s cash runway remains well supported following a PLN15.6m debt increase in the quarter.

Max Hayes

Written by

Max Hayes

Associate Analyst

TMT

CI Games

Encouraging lead indicators and a robust Q1

Q123 results

TMT

6 June 2023

Price

PLN5.60

Market cap

PLN1,024m

PLN4.17/US$

Net debt (PLNm) at 31 March 2023

(includes financial leases of PLN3.4m)

29.7

Shares in issue

182.9m

Free float

71%

Code

CIG

Primary exchange

Warsaw Stock Exchange

Secondary exchange

N/A

Share price performance

Business description

Founded in 2002, CI Games is a Warsaw-based developer and publisher of AA+/AAA multi-platform video games for a global audience. It specialises in first-person shooter and action-driven titles, with IPs including the Sniper Ghost Warrior and Lords of the Fallen franchises. FY23 looks set to be a transformational year for the group following the release of its next major game, Lords of the Fallen, which will be the first release as part of the FY23–27 strategy roadmap.

Analysts

Max Hayes

+44 (0)20 3077 5721

Katherine Thompson

+44 (0)20 3077 5730

CI Games is a research client of Edison Investment Research Limited

CI Games’ Q123 results were robust, given that revenue continues to be driven by its back catalogue as we await the release of its next headline game, Lords of the Fallen (LotF), which has now been confirmed for 13 October 2023. The group continues to generate positive EBITDA, despite a significant increase in marketing costs related to LotF and other operating expenses tied to its strategic pillars. Lead indicators are encouraging for LotF and momentum could continue to build with five to six major marketing beats planned before its launch. The group’s cash runway remains well supported following a PLN15.6m debt increase in the quarter.

Year end

Revenue* (PLNm)

EBITDA*

(PLNm)

PBT**
(PLNm)

EPS**
(PLN)

EV/EBITDA
(x)

P/E
(x)

12/20

46.0

27.8

8.5

0.03

37.9

161.0

12/21

105.5

62.5

44.9

0.16

16.9

34.3

12/22

56.7

16.1

11.4

0.05

65.5

112.0

12/23e

270.0

206.9

131.5

0.57

5.1

9.8

Note: *Estimates based on sales forecasts in US dollars and therefore vary with exchange rate movements to the Polish zloty. **Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

CI Games reported a 24% y-o-y decline in net revenue to PLN9.8m. With no new releases in the quarter or in 2022, revenue continues to be driven by its back catalogue. The group’s last release was Sniper Ghost Warrior Contracts 2 in June 2021, as well as two releases from its indie publisher United Label in Q321.

EBITDA remained positive at PLN1.2m at a margin of 12.3%, down 36.3pp y-o-y, despite the decrease in revenue and a significant growth in its selling, general and administrative costs. These cost increases primarily relate to the marketing push for LotF, which continues to drive improvements in the game’s lead indicators. LotF is now 15th in the Steam Global Wishlist chart, up three places from its FY22 results, and now eighth on the Epic Store Wishlist.

On 18 May, management announced that the game will be released on 13 October, with the disclosure coinciding with the latest extended gameplay trailer, showcasing the capabilities of UE5 and some highly anticipated ‘boss battles’. The group has stated that it is planning a further five to six marketing campaigns prior to the game’s release, which we believe will act as catalysts for the stock.

The group reported a PLN15.6m increase in its current borrowings, which will help fund the final polishes to LotF, as well as support the additional marketing campaigns management has planned for the game. We believe that the release of LotF later in the year should drive a swing back to a strong net cash position, with the marketing costs incurred helping to build operating leverage later in the year.

On 24 April, the company secured a distribution agreement with Plaion and management expects more to follow, ensuring wider availability of the game across key geographies.

General disclaimer and copyright

This report has been commissioned by CI Games and prepared and issued by Edison, in consideration of a fee payable by CI Games. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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New Zealand

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General disclaimer and copyright

This report has been commissioned by CI Games and prepared and issued by Edison, in consideration of a fee payable by CI Games. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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