Long
Compelling BUY based on fundamentals + technicals
TECHNICALS:
Rovio has had a strong performance over the last 2 weeks, up 13%. Key support level at EUR 3.75 held. Volume also experienced a strong rebound. RSI has crossed the 30 mark, which is similar to the onset of the last bull trend in late 2018.
VPVR shows PoC at EUR 4.15, again with strong support to the downside. The path to EUR 5 is relatively sparsely filled, leaving room for a price breakout.
On the daily chart, 50MA turned from resistance to support.
Rovio repurchased 41.5k shares on 13 Nov sending the shares up by 5.5% on the day.
FUNDAMENTALS (as of Q3 2019):
Recent sell-off driven by profit warning and investor fears that Rovio turns ex-growth. However, this totally ignores the financial prowess of Rovio and tech assets. No balance sheet risk.
Adj EBITDA (LTM) = EUR 37.7m. EBITDA includes a EUR 10m charge for Hatch. If added back, EBITDA would have been EUR 47.7m
Operating CF (LTM) of EUR 26.6m (EUR 36.6m after Hatch add-back).
Market cap: EUR 348m
Net cash: EUR 112m (tons of strategic flexibility here: share buybacks, refinace; cash is earmarked for M&A which has been proven slow)
EV: EUR 235m
EBITDA multiple (LTM): 6.2x and 4.9x (adj for Hatch)
Op CF yield: 11.3% and 15.6% (adj for Hatch)
Based on FY 2018, P/E of 13.9x and Div yield of 2.1%
MAIN DRIVER: M&A (Hatch), EARNINGS SURPRISE
Rovio is currently in talks to sell a 30% stake in Hatch Entertainment, an internally incubated mobile cloud-gaming asset. Hatch is rolling out in 23 countries (18x EU, South Korea, US, Japan) with the likes of Samsung, Vodafone, NTT Docomo. The product is live and still free but started showing ads recently. The Hatch-CEO is a long-standing F2Play company builder with a strong vision. The existing product and partnerships show he can execute.
Hatch is not reflected in Rovio’s valuation at all. No revenues or value is attributed to the company valuation. A deal is expected to be announced by year-end (as per CEO’s comment on the CMD in Nov). Rovio's ownership expected to fall below 50%: Deconsolidate Hatch from Rovio's P&L + low to nil cash allocation to Hatch (expected to be injected by Hatch stake buyer) => Higher pro-forma EBITDA and no cash drain.
Rovio is rolling out a number of new games in Q4 2019. This should support earnings strength. The company has been transforming into more than just Angry Birds.
Rovio has had a strong performance over the last 2 weeks, up 13%. Key support level at EUR 3.75 held. Volume also experienced a strong rebound. RSI has crossed the 30 mark, which is similar to the onset of the last bull trend in late 2018.
VPVR shows PoC at EUR 4.15, again with strong support to the downside. The path to EUR 5 is relatively sparsely filled, leaving room for a price breakout.
On the daily chart, 50MA turned from resistance to support.
Rovio repurchased 41.5k shares on 13 Nov sending the shares up by 5.5% on the day.
FUNDAMENTALS (as of Q3 2019):
Recent sell-off driven by profit warning and investor fears that Rovio turns ex-growth. However, this totally ignores the financial prowess of Rovio and tech assets. No balance sheet risk.
Adj EBITDA (LTM) = EUR 37.7m. EBITDA includes a EUR 10m charge for Hatch. If added back, EBITDA would have been EUR 47.7m
Operating CF (LTM) of EUR 26.6m (EUR 36.6m after Hatch add-back).
Market cap: EUR 348m
Net cash: EUR 112m (tons of strategic flexibility here: share buybacks, refinace; cash is earmarked for M&A which has been proven slow)
EV: EUR 235m
EBITDA multiple (LTM): 6.2x and 4.9x (adj for Hatch)
Op CF yield: 11.3% and 15.6% (adj for Hatch)
Based on FY 2018, P/E of 13.9x and Div yield of 2.1%
MAIN DRIVER: M&A (Hatch), EARNINGS SURPRISE
Rovio is currently in talks to sell a 30% stake in Hatch Entertainment, an internally incubated mobile cloud-gaming asset. Hatch is rolling out in 23 countries (18x EU, South Korea, US, Japan) with the likes of Samsung, Vodafone, NTT Docomo. The product is live and still free but started showing ads recently. The Hatch-CEO is a long-standing F2Play company builder with a strong vision. The existing product and partnerships show he can execute.
Hatch is not reflected in Rovio’s valuation at all. No revenues or value is attributed to the company valuation. A deal is expected to be announced by year-end (as per CEO’s comment on the CMD in Nov). Rovio's ownership expected to fall below 50%: Deconsolidate Hatch from Rovio's P&L + low to nil cash allocation to Hatch (expected to be injected by Hatch stake buyer) => Higher pro-forma EBITDA and no cash drain.
Rovio is rolling out a number of new games in Q4 2019. This should support earnings strength. The company has been transforming into more than just Angry Birds.
Transaction en cours
Rovio has announced a share buyback programme on 12 Nov: 3m shares (3.7% of total shares) or EUR 18mThis will add incremental buying pressure for days/weeks to come.
Transaction en cours
Odey AM (London-based HF) has crossed the 5% ownership threshold on 14 Nov. Odey is now by far the largest shareholder and most likely the reason for last week's above-average transaction volume.This week started quite disappointingly. Suspect it's Finish retail investors based on a) small lot size of trades and b) market orders (candles do not look like limit orders). This should shake out a ton of "willing" sellers and clear resistance during the next up-move.
Transaction en cours
Quick update on the share buyback (22 days passed): Rovio bought 960k shares for c EUR4m (avg price of EUR 4.15; avg of 43.6k shares per day). That's 32% (based on 3mln shares) or 22% (based on EUR 18mln). If Rovio continues purchases at these avg rates, there'd be another 47 days of buying.
As an observation: If people stopped selling, Rovio's broker would be allowed to pay EUR 6.89 (+60%)
Transaction en cours
Valuation update - Cash-adjusted market cap: P/E 21e of 7.7x 1/ Share buyback: Bought 1.2m share, spent EUR 5.1m
Share price: EUR 4.416
NOSH (as of Q3 19): 81.3m
Treasury shares (as of YE 19): 1.7m
Market cap: EUR 351.6m
2/ Adjusting market cap for cash balance:
Net cash (as of Q3 19): EUR 112.4m
Cash used for buyback: EUR 5.1m
Updated net cash: EUR107.3m
Adj market cap: EUR 244.3m
Implied share price: EUR 3.1 => market values Rovio's operating business (incl Angry Birds cash flow, Hatch, ops and tech) @ EUR 3.1/share ; the remainder is cash per share; see below comps to see how this undervalues the stock
3/ P/E multiples on adj market cap:
2019e: 15.3x
2020e: 11.4x
2021: 7.7x
All negative expectations are fully reflected in the stock
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