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Ten Square Games: High momentum continues

We keep our BUY rating on TEN and lift our FV to PLN 119.2 (from PLN 110.1) on the back of an 11% upgrade to our 18E EBITDA predominantly from a better than expected Fishing Clash performance, but also record high and still growing revs from margin accretive Let’s Fish and Wild Hunt games which overall more than offset lower than expected revenues from the Game Factory segment and a PLN 0.6m write off in 4Q18. In our view, the investment case for TEN remains very attractive and thus we would use the current share price weakness as a BUYing opportunity. After a good 3Q18, we expect a very good 4Q18 with revs at PLN 48.2m and net income of PLN 16.6m (vs PLN 35.4m/10.2m in 3Q18 resp) supported by very good revs momentum in Fishing Clash, Let’s Fish and Wild Hunt but also expected lower marketing spending in 4Q18 which should drive the net margin to 35% (vs 29% in 3Q18). The promising outlook does not end in 2018 as in 2019 TEN plans three soft launches: Mini Golf (March’19), hobby game (2H19), ladies dedicated game (end-2019) and developing a new game segment based on HTML5 technology showing that TEN is not just Fishing Clash. TEN presents very high cash conversion (net income = FCF) which should allow for decent cash distribution with a 19E DY of 4.8%. On our numbers, TEN trades at a 18E/19E P/E of 15.6x/14.0x, a 19/12% discount to peers which seems unjustified given all the above arguments.