Team17 Group PLC (LON: TM17)

Team 17 Group PLC is an FTSE AIM 100 Index listed United Kingdom-based company that develops video games. The Company supports both owned first-party intellectual property (IP) and third-party IP for developing and publishing games. The Company has more than 500 Digital Revenue Lines multiplatform with a solid pipeline for the future.

Growth Prospects

• Global Gaming Opportunity: The Covid-19 pandemic triggered a high demand for in-home, co-operative, and interactive entertainment, which resulted in a growth of 20% in FY20 to USD174.9 billion. At the end of FY20, worldwide gamers are expected to be around 2.7 billion, including 1.3bn PC players and 0.8bn console players. The Company expects the market to grow at a CAGR of about 7.6% between FY20-FY23, providing a solid opportunity for growth in the coming years.
• Strong Gaming Portfolio: The Company has a growing catalogue of games, including evergreen franchise games such as Worms, Escapist and Overcooked. It has more than 500 digital revenue lines of genre and a platform-agnostic gaming portfolio.
• Ease in Expansion Through Digital Sales: The Company earns more than 97% of its revenues through digital sales. In addition, it facilitates a high level of control over pricing and game lifecycle management, with minimal additional development costs post-launch.
• Expansion Through M&A: The Company recently acquired StoryToys, a world-class developer and publisher of educational entertainment apps for children. It helps establish a new, highly complementary, and fast-growing edutainment vertical for Team17 and strengthens the Company's market position. It also improved its IP portfolio value through the acquisition of Golf with Your Friends.

Key Risks 

• Competitive Industry: The Company works in a highly competitive industry with increasing new games every year.
• Technological Changes: The Company faces a continuous risk of technological advancements that could make the Company's technology obsolete.
• Government Intervention: As China limited the gaming hours for children, other governments could also impose strict restrictions on r gaming hours to control excessive time spent on online games by children.
  

Now we will analyse some key fundamental and shareholders statistics of Team17 Group PLC. 

Financial and Operational Highlights (for the six months ended 30 June 2021 as of 14 September 2021)

(Source: LSE Website)

• Marginal Revenue Growth: The Company posted a decent performance with revenue growth of 3% YoY while the gross profit went up by 10% during the period.
• Decent Cash Position: The Company maintained a high net cash conversion rate of 108%, and the net cash & cash equivalents increased to £66.6 million.
• Strengthening of Portfolio: TM17 took multiple steps to strengthen its portfolio as it launched six new title releases across multiple platforms. The content portfolio comprises over 500 digital revenue lines spanning a broad range of genres and platforms. TM17 also acquired the rights and assets to Golf with Your Friends for £12 million, strengthening Team17's IP portfolio and offering the potential for future franchise development.
• Acquisition of StoryToys: The Company recently acquired StoryToys, for the initial cash consideration of USD 26.5 million, with a further maximum of USD 22.5 million payable in cash on delivery of specific targets within three years, creating a new, highly complementary edutainment vertical.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 05 October 2021, at 8:45 AM GMT+1, TM17’s shares were trading at GBX 762.00, up by around 0.26% against the previous day closing price. Stock 52-week High and Low were GBX 900.00 and GBX 632.73, respectively.

On a daily chart, the stock price is sustaining between the middle and lower Bollinger bands. Hence, there could be an uptick in the stock price in the near term.

In the last two years, TM17s stock has delivered a decent positive return of ~142.14%. Also, it has outperformed the FTSE All-Share Leisure Goods index with a return of about 101.66% and the FTSE AIM 100 index with a return of about 36.14%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

TM17 remained confident about the growth in FY21, driven by launches done by Company in H2FY20 and H1FY21. Furthermore, the Group will benefit in H2FY21 from the contribution following the recent acquisition of StoryToys, which will significantly broaden the scope of the Group's existing portfolio and introduces an additional vertical, reinforcing the Group's position as a leading games entertainment business. The Company plans to release six new title releases in H2FY21, which will reap benefits to the Company going forward. Despite flat projections for FY21, the Company aims to achieve decent growth and expand its market share even further.

Considering the Company’s product portfolio, its M&A strategy, the better profitability, liquidity and leverage position of the business than the industry, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Team17 Group Plc at the current price of GBX 762.00 (as on 05 October 2021 at 8:45 AM GMT+1), with lower-double digit upside potential based on 46.37x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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