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Team17 growth slows after its lockdown boost

The games developer had a relatively modest degree of sales growth compared with the initial lockdown-induced surge in HY 2020, but a strong pipeline of games offers promise for the coming year.
September 14, 2021
  • Margins improved ahead of sales growth
  • Maintained strong cash generation

The relatively modest revenue and operating profit growth rates recorded by video game producer Team 17 (TM17) appear a little underwhelming when set against the surge in the first half of last year as the UK experienced its first lockdown. Although the half-year figures pale next to H1 2020 from a trading perspective, presumably as gamers haven't been locked-in to the same degree, the company's developers have been hard at work. There were six new releases in the first half of the year and the company is expecting a further six over the second half.

Nevertheless, the company saw its gross profits jump 10 per cent from £18.3m up to £20.2m, with the underlying margin up by 300 basis points. The growth rate was a slightly more subdued to the operating level at 5.6 per cent, but the main point is that the rate of profit growth outstripped the improvement in revenue. 

The group's operating cash conversion rate of 108 per cent helped it improve its net cash position. It will be using a chunk of this cash to fund the $26.5m (£19.3m) acquisition of StoryToys, a developer of education apps for children under the age of eight. There could be a further $22.5m of performance-based payments as well. StoryToys has over 100m app downloads to date and Team17 will be seeking to capitalise on the pandemic shift to online education.

Peel Hunt analysts are positive about the strong pipeline of games in the second half of the year, with one of its new games Hell Let Loose already receiving positive reviews. The broker has made no changes to its estimates, expecting EPS of 18.4p for FY21 before rising to 21.3p for FY22.

Most gaming companies seem to be plateauing at quite high multiples after some pandemic-induced growth. However, it’s unlikely the wider gaming market is going to shrink anytime soon. Buy.

Last IC View: Buy, 755p, 16 March 2021

TEAM17 (TM17)     
ORD PRICE:785pMARKET VALUE:£1.03bn
TOUCH:785-815p12-MONTH HIGH:900pLOW: 633p
DIVIDEND YIELD:NILPE RATIO:46
NET ASSET VALUE:87pNET CASH:

£65m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202038.813.38.5nil
202140.114.08.6nil
% change+3+5+1-
Ex-div:-   
Payment:-   
*Includes intangible assets of £47m or 36p a share.