LEAF Mobile has a strong pipeline of titles, says Eight Capital

Adhir Kadve of Eight Capital is optimistic about the growth of LEAF Mobile (LEAF Mobile Stock Quote, Chart, News TSXV:LEAF), maintaining a “Buy” rating with a target price of $10.00/share in an update to clients on Tuesday.

Headquartered in Vancouver, LEAF Mobile is one of Canada’s largest free-to-play mobile gaming companies, with a strong portfolio of idle gaming titles leveraging celebrity-IP and a proprietary technology platform called IdleKit.

Kadve’s latest analysis comes after Eight Capital met with Darcy Taylor, CEO of LEAF Mobile, for a day of virtual marketing meetings with investors, with discussions focused on the company’s upcoming pipeline of gaming titles, implications from Apple’s recent privacy changes as well as the company’s ongoing development of a new title based on the NBC sitcom The Office.

“The significant trust bestowed upon LEAF by NBCUniversal to develop The Office is no small accomplishment and acts as a strong vote of confidence to LEAF’s abilities as a game developer,” Kadve said. “Management noted that winning The Office IP was not a competitive bid but a joint decision between LEAF and NBC, in our view this further reinforces the deep relationship which LEAF has developed with NBC.”

The game, which the company notes is called 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 game is currently in the tech launch stage, with an aim toward being launched by the end of this year, accompanied by a holiday promotional effort from NBC and increased UA spending by LEAF Mobile. 

Kadve also notes the positive impact the company’s relationship with NBCUniversal is having in terms of potential new partners.

“The Office continues to bring joy to new and longtime superfans, and the upcoming launch of The Office: Somehow We Manage demonstrates our commitment to offering new and authentic ways to engage with one of the most celebrated TV comedies of all time,” said Jim Molinets, Senior Vice-President of Production, Universal Games and Digital Platforms in LEAF Mobile’s September 9 press release. “The game is reflective of the show’s signature humour, quirky characters and memorable storylines and will deliver an exciting interactive experience for players to enjoy for a long time to come.”

In addition to the project involving The Office, the company is also planning to launch RuPaul’s Drag Race game in late October, along with titles still to be named.

With its game launches, LEAF is continuing to push the right buttons on product development, Kadve notes, saying that the company’s IdleKit 2.0 platform is expected to be released in the next few weeks, with an aim to reduce development time to a proven concept thus reducing time to market for gaming titles and to include a more feature rich full stack solution, potentially opening more partnership doors for the company.

Kadve projects modest growth for next year with a steeper growth path going forward, as he forecasts revenue to come in at $98.2 million for 2021, marking a 22 per cent potential year-over-year increase before a sharper increase to a projected $184 million in 2022, which would represent a potential year-over-year growth of 87.4 per cent.

Meanwhile, Kadve expects a dip in the company’s EBITDA projections, with the forecasted $10.4 million in 2021 being down from the reported $11.2 million in 2020 with a reduced margin of 11 per cent, with the same margin holding for the 2022 projection of $20.7 million.

Kadve’s valuation data puts a positive light on LEAF’s efforts as well, as the EV/Sales multiple is projected to drop from the reported 2.8x in 2020 to a projected 2.3x in 2021, then being nearly halved to a projected 1.2x in 2022. Meanwhile, EV/EBITDA multiple projections come into play in 2021 at 21.8x, followed by a projected drop to 11x in 2022; the P/E multiple makes its first appearance in 2022 at a projected 13.6x.

Kadve said LEAF Mobile continues to trade at a discount compared to its independent game development peers, with LEAF at less than 2x 2022 revenues compared to its peers at 6x. Kadve said he came away from the LEAF meetings in a better frame of mind in regards to the company’s growth.

“Overall, the day reinforced our view that LEAF is an under-the-radar mobile gaming company who is well-positioned for growth ahead,” Kadve said. “We see several upcoming catalysts for the company including worldwide launches of RuPaul’s Drag Race (late-Oct), The Office (late Q4) and the doubling of its live game portfolio by EOY, all of which should support revenue growth into Q4 and throughout F22.”

At press time, Kadve’s 12-month target of $10.00 represented a projected one-year return of 231 per cent.

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