Next Games - Two-fold implications of the pandemic

Expect to see two-fold impact of the pandemic
Next Games will report H1 results on August 28th. We expect the outbreak of the coronavirus pandemic to have had a two-fold effect on current live games. The imposed restrictions on movement and self-isolation should have had an adverse effect on the location based Our World game and Next Games did launch the Free Roam feature to mitigate some of the impact. No Man’s Land should have continued to perform seemingly well, with the restrictions to certain activities having freed up more time for other activities such as gaming. We expect revenue of EUR 13.8m, a decline of 28% from the stronger comparison period, and an adj. EBIT of EUR -2.4m, with positive publishing operations profitability.

Limited news flow on games in development
News flow on games in development has been essentially non-existent post H2/2019. Blade Runner Rogue is running on app stores, but retention issues previously saw the game being moved back to production phase. The Stranger Things -game was in early access earlier on but no further news has been given. The pandemic should not have significantly affected development progress, with employees having rapidly shifted to remote working. Next Games expects modest revenue growth in 2020 assuming one or two games are published in 2020. We see some risks in achieving the outlook given the news flow and expect the H1 report to shed some much-needed light on the progress.

SELL (HOLD) with a target price of EUR 0.9 (0.84)
Valuation continues to be clearly below peers as is profitability. The restrictions due to the pandemic will have aided the gaming sector and peer multiples have in the past months been on the rise. We adjust our TP to EUR 0.9 (0.84) but lower our rating to SELL (HOLD).