Full rapport hos Pareto.
Turning the corner
No material surprises in Q1, with FX dragging EBITDA and content drought weighing on revenue. Still, lower capex cushioned EBITDAC. We cut estimates slightly but maintain our long-term view. With shares undervalued and key releases ahead, we see solid upside. We reiterate our Buy recommendation while lowering our TP to SEK 250 (260).
Slow start to the year – as expected
Paradox reported net sales of SEK 464m in Q1, in line with our estimates but 3% below market expectations. Following a record-strong Q4 regarding content output, Q1 saw a natural reversal effect as no major new content was released during the quarter, which resulted in a net revenue decline of 4% y/y. SG&A came in in line with our estimates, but negative FX movements negatively impacted EBITDA of SEK 25m, which explains the 11% EBITDA miss vs. PASe. On the other hand, capex came in at SEK 120m (-33% y/y), below our forecast of SEK 150m, explained by Life By You coming off the books and BL2 approaching its release where some of the development costs related to the final touches have been passed on to the developer. This mitigated the negative effect on EBITDAC, which was just 1% below PASe. Management is confident in its pipeline for the rest of the year and looks forward to releasing “new major games.”
Estimate changes
As capex came in significantly lower than PASe, we have reduced our estimates for the remainder of the forecast period by 14–15%. Investments in game development have now declined by 40% compared to the 2022 average, and we believe the most recent figures represent a new baseline from which Paradox will begin to grow. Paired with FX headwinds, we are also lowering our sales estimates by 3% over the forecast period. Additionally, we have increased our D&A estimates for the upcoming period to better reflect the pipeline and the completion of ongoing content development. The net negative impact on adjusted EBIT is 15%/10%/6% for FY25-27e. These updated estimates reflect a more cautious outlook on the yield conversion of previous investments. However, it is important to note that our accumulated EBITDAC estimates for FY25-27e remain largely unchanged, driven by the reduced capex.
Buy reiterated, TP SEK 250 (260)
Shares have recently experienced a sharp sell-off, with valuation multiples contracting to attractive levels. The current valuation of 9.9x EV/EBITDA for FY’25e represents a 20% discount to the four-year average and a widening discount relative to other international tier-one peers. With Q1 now behind us, a sequential improvement in content output, and a potential flagship announcement on the horizon, we believe the current levels present an attractive entry point. We reiterate our Buy recommendation while lowering our target price to SEK 250 (260). TP corresponds to 14.4x EV/EBITDA and 22.2x EV/FCF for FY’25e.
EU 1 var genialt for sin tid !