OP’s morning review speculates on possible warning signs. Are there other companies, preferably with justifications?
Exel, high probability
Exel (MORE) guidance expects 2019 revenue and adjusted operating profit to grow from 2018. Q1 provided a good start to the year, with revenue growing 25.9% and adjusted operating profit by approximately 11% from the previous year’s comparison period. Growth is currently driven by the wind power industry within the Building & Infrastructure segment, which receives support from the DSC acquisition in addition to organic growth. In terms of profitability, Exel is seeking improvement through a savings program launched in late 2018, aiming to achieve annual savings of three million euros by 2020. We expect the company to increase revenue by over 12% and adjusted operating profit by nearly 37% this year, which would warrant an upward revision of guidance during the current year.
Ponsse, reasonable probability
Ponsse (MORE) has guided for a slightly higher operating profit in 2019 compared to 2018. We estimate that the earnings contribution from the deployment of new capacity and new products will strengthen significantly towards the end of the year, while the component shortage is expected to ease. Ponsse has a very strong order book, and we believe the rising price of wood supports the demand for maintenance services and used machines in the Northern European markets, which represent the largest share of revenue. We forecast Ponsse to achieve approximately 20% earnings growth this year and identify a reasonable possibility for an upward revision of earnings guidance during the second half of 2019.
Aktia, small probability
Aktia (MORE) has guided that its comparable operating profit for 2019 will remain approximately at the previous year’s level. In practice, growth in commission income and cost-saving measures compensate for declining net interest income, which is pressured by the expiration of interest rate hedges. Aktia’s Q1 result would have been higher than the comparison period if stability fees were excluded (this year, stability fees were entirely allocated to Q1, whereas last year they were spread throughout the year). Asset management subscriptions have continued to be brisk, and AUM development has been strong. If favorable market momentum continues throughout the year, commission income is likely to push Aktia’s operating profit higher than the comparison period, and an upward revision of guidance may become necessary.
Once the Rovio movie hits theaters in the fall, gaming and licensing revenue will also grow at a good rate.
The guidance is cautious, and even though the stock has already corrected significantly, there is still room for positive surprises.
I have reduced my Rovio holdings as I don’t believe the movie will have a significant impact on results. The movie’s effects have been inquired about in every webcast, and management has been very cautious in their responses. I see the movie more as a last-ditch effort for the AB (Angry Birds) brand.
Well, Rovio can’t change its guidance based on a hunch… The film’s costs are starting to be paid off, and future profits are expected. The whole thing is marketing, so as gaming companies communicate, it’s an investment in the future.
I don’t expect the company to change its guidance based on gut feeling. I don’t expect the guidance to change at all. The film’s risk/reward ratio is lower compared to the previous film. Due to this, the potential increase in user numbers you mentioned is the actual benefit. If user acquisition investments are not increased, the film will replace current user acquisition investments → with the current game portfolio, I don’t consider a positive earnings warning likely in any way.
I’ve also been wondering what prerequisites Rovio would have for a course increase, but I haven’t come up with a good reason to buy Rovio for my own portfolio. It seems to me at least that Rovio is just stuck with its AB brand, which of course was a very profitable brand at one time. In the gaming world, however, it’s usually not enough to just release new versions of one game with minor changes. In addition, these ancillary products and movies have not been very successful for a while, as far as I know. Angry Birds products disappeared from stores a long time ago.
I quickly looked at Rovio’s games in the Play Store. Rovio has 23 games for Android, of which
19 are Angry Birds games
4 are other games, some of which, however, continue the same theme as AB.
In my opinion, the only hope to really get Rovio on the rise is to develop new and different games. AB doesn’t have to be forgotten, of course, but something new is clearly needed. Based on the numbers, it looks a bit like the trend is turning for the better with the latest releases, but these have not been as successful as Angry Birds (new releases have 5-50 million downloads in the Play Store and Angry Birds at its best has 100+ million).
In addition, Rovio, like other game studios, always has the risk that only at the time of the game’s release will it be known whether the game will be a success; the success of games is entirely up to the players. If the game is not successful, a lot of time and money has been wasted.
Here’s more of my reasoning for Rovio’s success and potential positive earnings surprise:
Rovio Entertainment Corp.: Vodafone selects game streaming platform Hatch as its hero 5G gaming service
GlobeNewswire•May 23, 2019
Vodafone selects game streaming platform Hatch as its hero 5G gaming service
Partnership between Finland’s pioneering cloud gaming service and Europe’s largest tech communications company brings premium gaming on the go to Vodafone mobile customers in the UK, with more European markets planned to follow
Premium game streaming platform Hatch, a Rovio Entertainment subsidiary, and multinational telecommunications brand Vodafone are collaborating to bring cloud gaming to select European markets. To start with, all Vodafone pay monthly customers in the UK will have complimentary access to Hatch Premium for three months from July 3, when Vodafone’s 5G network is switched on. After this, they can enjoy the world’s first cloud-based mobile gaming platform for £6.99 a month.
What added value do you think Hatch provides to its users/players? I can’t even test it on my own device, as I own an iPhone. I think this is a major problem. I’ve downloaded Hatch to my work phone and I’ve tried it about once a month, but I think the application still needs to develop more, and it requires significant, if not massive, marketing to reach a truly significant number of users. It’s worth remembering that there’s competition in the field as well. Hatch only brings costs to Rovio. At least for now.
Well, if Hatch can be made to work properly and gain a foothold in Asia, then it’s a no-brainer. Of course, if you approach it like you do, you won’t be disappointed.
Rovio’s CEO, Kati, can’t even talk about Hatch with a poker face.
Kati isn’t really a salesperson; her face reveals what she’s thinking.
It’s not impossible that Rovio will be at ten euros by Christmas… of course, that’s still 20% short of the IPO price, but let’s not worry about that yet.
If Inderes’ analysis extended to Rovio, it would be a Buy recommendation, just like it is for Kamux
Well, if things start working, then the result could be anything. At the moment, I don’t trust Hatch enough to expect a positive profit warning for 2019.
The whole case is still in such early stages that the risks are high. That’s why partners are acquired, to share the risk and find the best partners around to implement a working strategy. The future will show what will eventually hatch from it. Personally, I see the most positive thing as Hatch having found major players from every continent
In Osuuspankki’s morning review, there’s a list of potential profit warners.
In the following review, we’ve gathered the companies for which we consider a positive or negative profit warning still very possible before the January-February Q4 earnings season.
In August, Fellow Finance lowered its guidance and expects its revenue to grow by over 20% this year, and adjusted EBIT to decrease from the previous year. We already lowered our growth forecast in the previous update (October 3) to below guidance, and based on the October volume development, a further reduction in guidance seems almost certain according to our calculations.
Positive from NoHo:
We still expect an excellent Q4 from the company and a raise in guidance later this year. Due to the unwarranted share price drop, the expected return has risen to an attractive level again.
in the future.
