Huuuge Games: Play to win (BUY - initiation of coverage)
We initiate coverage of Huuuge Games (Huuuge) with a BUY and a 12M price target (PT) of PLN 50.0, offering 36% upside. Given Huuuge’s experience in Live-Ops, the best-in-class monetisation of its games and its strong KPIs, we believe the company is well-positioned to be one of the beneficiaries of the positive market trends. Despite the very demanding, COVID-19 boosted comparison base of last year, Newzoo expects the mobile gaming market to grow by 4.4% yoy, to USD 90.7bn, in 2021E. We forecast Huuuge to deliver a 3Y adjusted EBITDA CAGR of 16%, driven by the top line. Starting from next year, new games (e.g., Traffic Puzzle) should be the most important contributor to the top line and turn profitable after UA costs, in our view. As potential triggers, we note the improvement in the flagship and new games’ KPIs, the softer comparison base and, thus, the improving earnings momentum starting from 3Q21E, as well as potential new M&A. The stock is trading at 8-15% discounts vs. its global mobile peers on 2021-22E EV/EBITDAs, which does not seem justified, to us, given the similar growth profiles.
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