tinyBuild plc (LON:TBLD) H1 performance was slightly ahead of expectations despite sector indications of soft demand. The company continues to see strong demand from subscription services and its back catalogue whilst effectively managing the impact of the war in Ukraine. Full year results are expected to be at least in line with expectations. The company has a strong release schedule in H2 and early KPIs for these titles have been “very encouraging”. We make no changes to our slightly above consensus earnings estimates.
H1 trading update
¨ H1 performance: The company emphasised that it has not been affected by a crowded release schedule and the lifting of Covid restrictions, unlike other developers and publishers. Management continues to see strong demand due to competition between platforms and the company continues to receive advances from distribution partners in line with expectations. Key contributing titles in the first half include Deadside, Potion Craft and Not For Broadcast.
The company’s H1 performance is particularly commendable given its significant staff count in Ukraine and Russia. tinyBuild quickly moved all staff out of the riskiest areas and the company plans to open a new permanent studio in Europe. The disaster appears to have increased motivation and staff cohesion. tinyBuild has one of the lowest levels of staff turnover – low single-digit versus an estimated 15.5% at an industry level.
¨ H2 outlook: tinyBuild recently announced a record number of new titles for future release thereby biasing the release schedule towards H2, as previously flagged. Importantly, the company is seeing strong early indicators of consumer traction for its game pipeline, including very encouraging KPIs for Hello Neighbor 2 such as wish lists, pre-orders, playtime and social media activity.
¨ Valuation: Shares trade at 23% discount to Team17 and 30% premium to Devolver based on consensus EV/ EBIT 2022. tinyBuild’s trading update should give investors additional confidence in its ability to deliver on earnings and make its 9x EV/EBIT 2022 multiple appear attractive.
Summary financials
| Price | 127p |
| Market Cap | £256m |
| Shares in Issue | 203m |
| 12m Trading Range | 116p – 274p |
| Free float | 49% |
| Next Event | H1 results – 27 September |
Financial forecasts
| Yr end Dec ($’m) | 2021A | 2022E | 2023E | 2024E |
| Revenue | 52.2 | 66.9 | 72.4 | 78.4 |
| % growth | 38.5 | 28.3 | 8.2 | 8.2 |
| Gross profit | 34 | 34.1 | 38.2 | 41.3 |
| Admin expenses | -11.8 | -7.6 | -8 | -8.4 |
| Adj EBITDA | 22.2 | 26.5 | 30.2 | 33 |
| EBITDA margin (%) | 42.6 | 39.6 | 41.7 | 42.1 |
| Adj PBT | 22.1 | 26.3 | 29.9 | 32.7 |
| Adj dil EPS | 0.091 | 0.094 | 0.106 | 0.115 |
| Net Cash | 48.8 | 65.6 | 82.3 | 100.7 |
| EV/Sales (x) | 4.6 | 3.6 | 3.1 | 2.7 |
| EV/EBITDA (x) | 10.7 | 9.1 | 7.5 | 6.4 |
| EV/ EBIT (x) | 10.8 | 9.1 | 7.6 | 6.5 |
| Adj PE dil (x) | 16.6 | 16 | 14.2 | 13.1 |
