Leaf Mobile scores big with The Office, says Haywood Capital

Haywood Capital Markets analyst Neal Gilmer is optimistic about Leaf Mobile (LEAF Mobile Stock Quote, Chart, News TSXV:LEAF), maintaining a “Buy” rating with a target price of $6.50/share for a projected return of 106 per cent in an update to clients on September 9.

Headquartered in Vancouver, Leaf Mobile Games develops and publishes free-to-play mobile games through its studio networks and partners primarily for Apple’s iOS and Google’s Android platform. The company operates two subsidiaries: East Side Games (ESG) and LDRLY. In addition to game development, Leaf generates revenue through third-party games that are developed on its Idle Kit platform.

Gilmer’s latest analysis comes after Leaf Mobile announced its next mobile game offering, The Office: Somehow We Manage, based one of the most recognized comedy TV series of all time in collaboration with NBC’s Universal Games and Digital Platforms through its East Side Games subsidiary.

“This latest title demonstrates LEAF’s continued ability to secure valuable Intellectual Property and partner with major studios to expand its portfolio of titles,” Gilmer said. “The release of the game, which is expected later this year, should drive meaningful increases in engagement and ultimately revenue from The Office’s passionate fan base.”

The game will be developed on the company’s Idle Kit platform, with an expected release toward the end of 2021, which Gilmer believes will push the company’s organic growth well into 2022.

“Securing a licensing agreement with marquee IP such as NBC’s The Office aligns with LEAF’s strategy of identifying and developing games that have a loyal, cult-like fanbase that should drive engagement and game longevity, “Gilmer said. “The breadth and depth of following The Office has developed over the years should result in faster penetration and growth compared to a typical game. In addition to the quality of the IP, the partnership with a studio such as NBC demonstrates the trust in East Side Games and its reputation as a world-class game developer and publisher.”

Based on the original U.K. series, The Office premiered in the United States in 2005 with Steve Carell as the main character, Michael Scott. The show ran for nine seasons and became one of the most celebrated sitcoms of the 2000s, winning five Primetime Emmy Awards and developing a loyal following, as it became the most-watched show on Netflix in 2020 with over 57 billion minutes watched.

The Office: Somehow We Manage will allow players to play through some of the series’ funniest moments as the show’s cast of characters while they work towards record profits at the fictional Dunder Mifflin paper and office supply sales company.

“The opportunity to bring the five-time Primetime Emmy award-winning TV comedy series The Office to mobile in our trademark idle-game style is an honor for us here at LEAF,” said Darcy Taylor, Chief Executive Officer of LEAF. “We’re looking forward to sharing this new experience with everyone from new audiences to Dunder Mifflin diehards.”

The company reported its second quarter financial results in the middle of August, headlined by $22.5 million in revenue for a 28 per cent year-over-year increase, with pro forma year-to-date revenue at $47.8 million, a 38 per cent year-over-year increase. The company has also doubled its pro forma year-to-date adjusted EBITDA, with a figure of $5.6 million through the second quarter.

Leaf has also benefited from a cash perspective with an additional $17 million in relation to the 2020 year-end figure thanks to $2 million in cash from operations and a $15 million credit facility.

Gilmer’s financial metrics show Leaf as a company continuing to grow, as he projects revenue to cross into nine digits for 2021 at $101.3 million, marking a potential year-over-year increase of 25.8 per cent, with a significant spike to $181.3 million projected for 2022, which would represent a potential year-over-year increase of 79 per cent.

Gilmer also projects 2021 to be the year Leaf breaks into positive EBITDA at $11.8 million and a margin of 11.6 per cent, with a projected jump to $29.5 million and a margin of 16.3 per cent in play for 2022.

With an enterprise value of $267 million and a current trading multiple of 1.5x its 2022 revenue estimate compared to the 3.5x of its peer group, Gilmer believes the company continues to be in a strong place.

“We believe LEAF Mobile has created a strong free-to-play mobile game development platform poised for growth and potential acquisition opportunities,” Gilmer said. “This latest announcement underscores the pipeline of opportunity as the company is poised to significantly increase its titles in the market through the end of this year.”

Overall, Leaf Mobile’s stock price has fallen by 33.7 per cent for the year to date, reaching a high point of $4.95/share on February 12 and bottoming out at $2.55/share on July 22.

Disclosure: Leaf Mobile is an annual sponsor of Cantech Letter.