Ten Square Games: Big fish in a large (and growing) pond (BUY - transfer of coverage)
Due to a change in analyst responsibilities, we transfer coverage of Ten Square Games, keeping our BUY rating, with a new price target (PT) of PLN 704/share (from PLN 310/share). We have increased our 2020-21E EBITDA forecasts by 54-78%, to reflect the impressive growth in Fishing Clash bookings (up 266% in 2Q20 and 252% in July 2020), supported by the pandemic, which encouraged a new wave of mobile gamers to try Ten Square’s flagship game (MAU up 382% yoy to a record-high 6.9m in 2Q20). We expect Fishing Clash sales to remain at the high, newly-reached level in the coming quarters, while its launch in China (the biggest mobile gaming market globally) should add PLN 37-79m in 2021-22E sales, on our estimates (4-7% of total sales). We expect this, along with the monetisation of its current customer base, to result in a compelling 63% NI CAGR in 2020-22E. On our estimates, Ten Square trades at 22.0-14.9x 2020-21E P/Es, at 26-41% discounts vs. its gaming peers.Ten Square Games SA is a Poland-based mobile games development company. The Company is focused on 3D simulation hobby games for people who seek outdoor experiences on their mobile devices, like fishing or hunting games. Its games are available on social platforms, a network of partner sites, as well as on Google Play, App Store and Microsoft Store.
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