Ten Square Games: Turning players into payers (BUY - initiation of coverage)
Gaming is now the largest part of the entertainment industry (3x larger than Hollywood in terms of revenues in 2018), with the main growth prospects and value driven by mobile gaming (Newzoo). Ten Square Games operates in the free-to-play (F2P) mobile gaming market. Its flagship IP, Fishing Clash, was released globally in 4Q17, and is now one of the top-200 grossing mobile games on App Store and Google Play (combined) worldwide. Fishing Clash has increased its revenue every quarter since its launch, and it is now responsible for over 80% of the company’s total revenue (2019E). Apart from Fishing Clash, Ten Square has been able to deliver growth in revenue in its other titles as well. Going forward, the company plans to diversify its revenue stream, and it has three projects in soft launch (4Q19) and one more project in development. We note that success in mobile gaming is unpredictable; however, we highlight that: i) the company has over eight years of experience in successful F2P games development and strong monetisation; and ii) it has enough cash to make mobile games for many years (PLN 42m post the 2019 dividend). While Fishing Clash is now seeing its most successful period ever in terms of revenues, Ten Square generates strong FCF (FCF/EBITDA at 60-80%), pays a good dividend (a 75% payout ratio), and invests in portfolio diversification. We initiate coverage of Ten Square Games with a BUY rating and a price target (PT) of PLN 222/share.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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