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LEAF Mobile has a huge upside, Haywood says

Mini Golf Stars

Mini Golf StarsAnother development partnership is good news for mobile video game company LEAF Mobile (LEAF Mobile Stock Quote, Chart, News, Analysts, Financials TSX:LEAF), says Haywood Capital Markets analyst Neal Gilmer. In an update to clients on Tuesday, Gilmer reasserted his “Buy” rating and $0.75 per share target price, which at the time of publication represented a projected one-year return of 65 per cent.

Vancouver-headquartered LEAF Mobile is a free-to-play game developer with a portfolio of idle games, many of which are targeted for niche counter-culture groups, with titles such as Cheech & Chong Bud Farm, The Goldbergs: Back to the 80s and Trailer Park Boys Grea&y Money.

LEAF, which made a transformational acquisition this February in East Side Games (ESG) for $159 million, owns IdleKit, an internally-developed platform for designing narrative-driven idle games, which it licenses out to other developers and studio partners.

LEAF on Tuesday announced a publishing and IdleKit partnership agreement with Game Masons for the development and release of a sports themed mobile game on iOS and Android, expected to launch in 2022. Game Masons is based in Santa Barbara, California, has been developing games since 2011 and is well known for its Mini Golf Star series, where two titles, Mini Golf Stars: Retro Starts and Mini Golf Stars 2 have combined for over 35 million downloads. The terms of the partnership are subject to confidentiality obligations.

The sixth partnership announced by LEAF this year, CEO Darcy Taylor said it will expand the company’s game publishing pipeline for 2022.

“We are excited to expand into the untapped idle sports genre and we couldn’t have selected a better partner to do this with,” said Taylor in a press release. “Game Masons has developed top-tier mobile sports experiences and they will be leveraging this vast experience as they develop this new game on ESG’s IdleKit platform.”

Commenting on the deal, Gilmer said the partnership is a continuation of LEAF’s strategic vision.

“LEAF Mobile continues to execute on its stated objectives with another partnership that deepens its pipeline of games, diversifying its growth prospects,” Gilmer wrote. “The use of IdleKit platform as well as publishing the game will enable LEAF to capture greater economics of the potential revenues while also limiting expenses associated with game development.”

As a preview to LEAF’s first quarter 2021 results expected in mid-May, Gilmer has now updated his financial estimates for this year and next, leaving revenue estimates relatively unchanged and slight adjustments to gross margins and operating expenses leading to slightly higher EBITDA margins. For the Q1 2021, the analyst is calling for nine-per-cent year-over-year revenue growth to $25.0 million and EBITDA of $2.3 million.

Longer-term, Gilmer thinks LEAF will generate full 2021 revenue and EBITDA of $132.7 million and $15.4 million, respectively, and 2022 revenue and EBITDA of $219.7 million and $40.2 million, respectively.

Gilmer’s investment thesis on LEAF rests on strong expected growth in the mobile gaming industry, fueled in 2020 by the COVID-19 pandemic and expected to continue going forward, the company’s IdleKit platform which can reduce the build time and minimize game development costs to bring new titles to market and, finally, LEAF’s strong management team which has deep experience in mobile game development, technology and entertainment.

“LEAF has been very active on building its organic revenue growth, supplementing its own game development pipeline with various IdleKit agreements. The announcement with Game Masons not only accomplishes that goal but it also broadens LEAF’s presence in the sports genre,” Gilmer wrote.

“We believe LEAF Mobile has created a strong free-to-play mobile game development platform poised for growth and potential acquisition opportunities,” Gilmer said.

LEAF joined the TSX Venture exchange in April 2020 through a reverse takeover and then graduate to the senior board in February of this year, where so far the stock is down 13 per cent.

In April, LEAF Mobile’s subsidiary ESG entered into a publishing and IdleKit partnership agreement with Australian game developer Might Kingdom Games PTY for the global release of a mobile game. Mighty Kingdom has released over 50 games and has had over 50 million downloads, working with major IP licensing partners like Disney and the LEGO Group.

The partnership will see a game developed in-house by Mighty Kingdom using IdleKit platform and will be based on a well-known science fiction franchise, to be announced at a later date and expected to launch in 2022. Terms of the partnership are subject to confidentiality obligations.

Taylor wrote in a press release that the partnership will expand LEAF’s reach into new geographies.

“Mighty Kingdom brings a wealth of experience as Australia’s largest independent game developer and we’re excited to see their creativity in action with this new Sci-Fi project. We’re proud to see ESG’s IdleKit technology platform gaining global recognition and this partnership marks the 4th IdleKit partnership we’ve announced so far this year,” Taylor said.

Disclosure: LEAF Mobile is an annual sponsor of Cantech Letter

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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