East Side Games is a winner of a stock, says Haywood

Canadian mobile game company East Side Games Group (East Side Games Stock Quote, Chart, News TSX:EAGR) should go higher, according to analyst Neal Gilmer of Haywood Capital Markets. Gilmer maintained a “Buy” rating and target price of $6.50/share for an implied return of 75.2 per cent in an update to clients on Thursday.

Headquartered in Vancouver, East Side Games develops and publishes free to play mobile games, including Archer: Danger Phone, Bud Farm Idle Tycoon, Cheech & Chong Bud Farm, The Goldbergs: Back to the 80s, It’s Always Sunny: The Gang Goes Mobile, Trailer Park Boys Grea$y Money, and RuPaul’s Drag Race Superstar.

The company has built up a market capitalization of $284 million, with cash of $12 million available against debt of $39 million, with East Side having an enterprise value of $311 million. 

East Side released on Thursday the anticipated game The Office: Somehow We Manage, a collaboration with Universal Games and Digital Platforms, on iOS and Android worldwide.

“The launch of the game should result in rapid growth and impressive game longevity as a result of the loyal fanbase that spans across the globe,” Gilmer said. “Additionally, having NBC Universal Games and Digital Platforms as reference partners should enable the Company to execute on new agreements for valuable IP as a result of the trust bestowed by major content producers.”

“This latest development not only established East Side as a trusted game developer for future opportunities but will strengthen its revenue base and drive organic growth,” Gilmer added.

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 allows 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 Office: Somehow We Manage reimagines the cast as vibrant, animated characters for the first time, bringing a fresh new experience to The Office fans everywhere,” said Jim Molinets, SVP of Production, Universal Games and Digital Platforms in a January 27 press release. “The game will transport players into well-known and hilarious episodes that have resonated with so many over the years and let them ‘clock in’ even more time with their favourite Dunder-Mifflin employees.”

The launch of The Office: Somehow We Manage is the latest development in what’s already been a busy 2022 for East Side, having previously announced the acquisition of the Funko Pop! Blitz mobile game and all its related assets from N3TWORK Inc, including Funko Pop! Versions of characters from franchises like Jurassic World, Back to the Future, Shrek, Trolls, and Masters of the Universe.

In adding to the company’s Super Marquee Lines that includes The Office: Somehow We Manage and RuPaul’s Drag Race Superstar, East Side will also be developing a title based on the BBC series Doctor Who, which has been airing for nearly 60 years and has developed a global following, and is a multi-time winner of the BAFTA Award for Best Drama Series. 

Gilmer expects East Side’s financial trajectory to keep surging upward, setting an expectation of $91.2 million in revenue for the 2021 year-end figures, followed by a projected increase into nine figures at $152.1 million in 2022, implying year-over-year growth of 66.8 per cent. In 2023, Gilmer projects an increase to $212.1 million, implying a year-over-year increase of 39.4 per cent.

Meanwhile, Gilmer has East Side’s EBITDA set at $8.2 million for the 2021 year-end to imply a margin of nine per cent. From there, he expects an increase to a projected $18.3 million in 2022, growing the implied EBITDA margin to 12 per cent before a projected jump to $31.6 million in 2023, good for an implied margin of 14.9 per cent.

Gilmer also expects East Side to turn in positive EPS beginning in 2022 at $0.09/share, then doubling to a projected $0.18/share in 2023.

“We believe East Side Games has created a strong free-to-play mobile game development platform poised for growth and potential acquisition opportunities,” Gilmer said of The Office: Somehow We Manage. “The recent speedbump in growth rate does not alter our fundamental view and outlook on the Company and its growth strategy.”

Since it began trading on the Toronto Stock Exchange on February 10, East Side’s stock price has dropped by 20.4 per cent, though it has yielded a return of 11.4 per cent in January.

Disclosure: East Side Games is an annual sponsor of Cantech Letter.