Polish Mobile Game Development: missing the growth, counting cash (Huuuge Games stays BUY, Ten Square Games stays HOLD)

In this report, we maintain our BUY rating on Huuuge Games (HUG), with our 12M price target (PT) cut to PLN 24.8 (vs. PLN 34.6). For Ten Square Games (TEN), we reiterate our HOLD rating, having cut our 12M PT to PLN 83 (vs. PLN 100). On our revised down forecasts, both HUG and TEN offer significantly weaker earnings outlooks vs. their foreign peers (a 3Y adjusted EBITDA CAGR of -17% for HUG and -8% for TEN, vs. +6% for their peers, on the consensus). We mostly blame the low diversification (two flagship games each, quite mature in both cases) and the rather poor track record in terms of new game development, resulting in a continuation of the yoy revenue declines this year, despite the global mobile game market recovery. As the earnings outlook appears rather gloomy, low valuation multiples do not seem enough to be a trigger, in our view. We focus on cash generation and distribution potential vs. the current valuation levels. Following material share price decline (-38% ytd), HUG looks much better in this respect, being the key reason for our preference for HUG vs. TEN.