On August 30, 2022 Trophy Games Development A/S (“Trophy Games” or the “Company”) released statements regarding a new acquisition and a new management appointment.

Acquisition in line with Analyst Group’s expectations

Trophy Games has acquired 80% of the shares in PIU-PIU LT, a Lithuanian game developer for EUR 300t, which is to be paid fully in cash. As of now, PIU-PIU LT has only developed one game, SkyHaven, an airline tycoon game targeted toward PC, which will be added to the successful Transport Series, which as of H1-22 is Trophy Games biggest revenue generating segment and will compliment it well by generating future cost-synergies. SkyHaven, which is currently in an early access stage on Steam and expected to be released in full during H2-22, hasn’t lived up to expectations until this point, where Trophy Games by its earlier success is considered to bring the right know how as to make it another hit. The Company is confident in generating DKK 1-5m during the first year after full release by integrating PIU-PIU LT’s five developers, of which two are founders. A risk mentioned by Analyst Group is the supply of developers close to Copenhagen, this acquisition show once again that the Company are able to mitigate this risk by looking for opportunities throughout Europe. As Analyst Group already expected the Transport Series to be the leading revenue driver from now on, our forecast for 2022 and 2023 remains unchanged as of now.

New COO is ready for the challenge

The Company has promoted Theis Barenkopf Dinesen to Chief Operating Officer after being hired as an interim position as Organizational Progress and Collaboration Manager last year. With prior history as a Product Development Consultant from 2014 to 2017 within Trophy Games and successfully streamlining some of the Company’s operations in the previous year, the COO-role is a natural progression for Barenkopf Dinesen and something Analyst Group sees as reaffirming for Trophy Games future.

On August 17, 2022, Trophy Games Development A/S (“Trophy Games” or the “Company”) released their H1 2022 report. These are Analyst Group’s comments and key takeaways from the report:

• Strong Growth Despite Challenging Global Conditions
• Increased EBITDA
• Several Triggers Ahead

Strong Growth Despite Challenging Global Conditions

On a group level, Trophy Games performed total revenues of DKK 26.0m in H1 2022 (16.9), corresponding to a growth of 54%, mainly due to the Airline Manager 4 game that was acquired in H1 2021. The game has continued to reach a greater audience and gained new players during H1 2022, reaching 71,000 daily active users by the end of June, which is up from 45,000 daily active users at the start of the year. The total Transport Games series has now overtaken Sports as the Company’s biggest revenue generating segment, accounting to 51% of the total revenues during H1 2022, corresponding to DKK 13.1m. Looking at game series revenues, we consider Trophy Games performance of 44% in growth during H1 2022 to be strong, considering that the Company, as many others, have been faced with challenging global conditions during the past couple of months.

Increased EBITDA

As the Company’s titles in the sporting segment continues to deliver a long-term stream of revenues, as well as the transport segment showing strong growth, Trophy Games has focused in H1 2022 on optimizing the profitability of, for example, Pro 11, which has increased the Company’s overall margins. The presented EBITDA margin of 11.8% for H1 2022 (7.6) exceeds Analyst Group’s estimates of an average EBITDA margin of 9.3% for the full year of 2022, which is something we consider as a positive key take away.

Several Triggers Ahead

Significant events to expect during the second half of 2022 includes the scaling up of Warhammer IP, which was released during H1 2022, and the release of Shipping Manager. Although the Company is behind its timeline on Warhammer, the market outlook for the game still looks good. Even though the delayed launch has had an impact on the revenue for H1 2022, Analyst Group remain optimistic about the estimates set for the full year. The release of Shipping Manager is expected to become highly successful as it is the sister game of Trophy Games biggest title, Airline Manager, and is included in the highly successful Transport Games series. As the Airline Manager game has proven that the demand for transport manager games is high, Analyst Group expects that the coming release of the new IP Shipping Manager during Q4 2022, as well as the expected release of Truck Manager and Train Manager during 2023, will create additional value to Trophy Game’s core business and act as a catalyst for further growth.

Analyst Group’s view of the report is that the revenues of DKK 26.0m in H1 2022 lays a good foundation for Trophy Games to deliver a strong top-line growth for the rest of 2022. Trophy Games also exceeded our expectations in regards to EBITDA, as well as active players during H1 2022, where the game Airline Manager clearly shows that there is a demand for additional transport manager titles. Lastly, by looking at Trophy Games current cash position of DKK 30.3m by the end of June, it is clear that the Company still have a high financial flexibility to make strategic decisions on how to continue to grow the business further.

We will publish a full update of our previous equity research report.

On May 12, 2022, Trophy Games Development A/S (“Trophy Games” or the “Company”) released an announcement regarding the current state of the business. These are Analyst Group’s comments and key takeaways from the announcement.

• Increased revenue in line with estimates as titles are estimated to grow
• Airline Manager continues to grow and lays a good foundation for future titles

Increased revenue in line with estimates as titles are estimated to grow

Trophy Games presented a revenue of DKK 13.5m for the first quarter of 2022, which is on track with Analyst Groups’ previously presented estimates of DKK 75.1m in total revenue for 2022. The title Airline Manager has exceeded the expectations and is now Trophy Games’ biggest title, accounting for approximately 51% of the total revenue for the first quarter.

As the Company’s other titles in the sporting segment continue to deliver a steady and long-term stream of revenue, Trophy Games have during the first quarter focused on optimizing the profitability of, for example, Pro 11, which is expected to increase the Company´s margins. The presented EBITDA margin of 10.4% for the first quarter exceeds Analyst Group estimates of an EBITDA margin of 9.3% for the full year of 2022, showing higher profitability than expected.

The Warhammer IP is still under development, as the development for scalability has proven to require more time than expected. However, the market outlook for the game is still good, as the development to prepare the game for other platforms will begin during the third quarter of 2022.

Airline Manager continues to grow and create a foundation for future titles

The Company has previously announced its ambition of releasing a new series of transport games, building on the Airline Manager platform. As the game continues to reach a greater audience and gain new players, the growth of the Airline Manager game is in-line with the expected outcome, which in turn enables the potential for continued top-line growth by engaging with more active players. As the Airline Manager games has proven, the demand for transport manager games like these titles are high, resulting in high expectations of revenue growth going forward. The new IP Shipping Manager is in the pipeline to be released during the fourth quarter of 2022. The games Truck Manager and Train Manager are both expected to be released in 2023 which Analyst Group believe will create additional value to Trophy Games’ core business and act as a catalyst for further growth.

To summarize, the published revenue of DKK 13.5m for the first quarter of 2022 indicates strong top-line growth, giving us confidence that Trophy Games are on track to meet our current estimates of DKK 75m in total revenue for the full year of 2022. By exceeding the expectations with regards to revenues and active players for the first quarter, Analyst Group believes that the game Airline Manager clearly shows that there is a demand for additional transport manager titles, which in turn lays a good foundation for future expansion and growth in that area going forward.

Trophy Games Development A/S (“Trophy Games” or the “Company”) recently announced new financial goals for the years 2021 and 2022. The Company estimates the revenue of 2021 will reach between DKK 41.0-42.0m which is DKK 3.9m lower than Analyst Groups estimated revenue for 2021E. This is due to the release of Warhammer AoS: Soul Arena being pushed forward to 2022 instead of Q4 2021, subsequently also pushing the revenue to next year. In addition, Trophy Games reported some issues regarding Pro11 which had some mid-year technical issues concerning in-app sales campaigns which caused a drop in performance. The Company estimate revenues in 2022 to be DKK 70.0-80.0m which is in line with Analyst Groups estimates of DKK 79.9m.

Trophy Games also reported that EBITDA for 2021 is estimated in a range of DKK 1.7-2.3m which is DKK 3.9m lower than our Base Scenario, this is mainly due to lower revenue and heavy investments in the transport series following the success of Airline Manager 4. Trophy Games also communicated that EBITDA for the year 2022 is estimated to DKK 4.0-8.0m, which is DKK 1.8m lower than our Base scenario due to continued heavy investments in both current and new games.

All in all, the investment thesis stands, and we iterate our Base scenario of DKK 9.1 per share due to Trophy Games having several interesting games already released and in their current pipeline. The Base scenario is derived by an EV/S multiple of 2.5x why our price has not changed. We see it as a good sign that the Company invests in the current game portfolio, which has proven to be profitable, rather than only acquiring top-line growth by acquiring new titles. Per the latest company announcement, the cash on hand amounted to DKK 42.0mn after the acquisition of Tiny Titan Studios, which gives the Company room to acquire additional titles and studios, which we see as highly probable.

Comments on the acquisition of Tiny Titan Studios

On the 15^th of December 23, 2021 Trophy Games Development A/S (“Trophy Games” or the “Company”) entered into an agreement to acquire 100% of the shares in Tiny Titan Studios (“Tiny Titan”). Tiny Titans is a Canadian game development company building games targeted towards mobile devices, including the popular title Tiny Rails. The acquisition is expected to widen Trophy Games’ game portfolio for future growth and is completely in-line with Analyst Groups estimates, we iterate our Base scenario of DKK 9.1 per share.

Analyst Group are positive to see that Trophy Games has announced a new acquisition in line with their growth strategy. Tiny Titan will add DKK 2.8m of revenue to Trophy Games in 2021 but Analyst Group believe that Trophy Games can improve monetization further and use their expertise in Tiny Studios. We also deem that Tiny Titan fits well in the current portfolio of strategy games and that there is a good potential for synergy effects appearing not only long-term but also short-term. The acquisition is paid fully in cash, thus using the money raised in the IPO, as per their plain. We estimate that there will be additional acquisitions in the coming year.

In addition, on the 3^rd of December, Trophy Games updated the release date for Warhammer AOS: Soul Arena and expects it to go live in January. The Company has reported that the release in tier 3 countries has progressed well, and the game is ready to be released globally.

Søren Gleie about the acquisition of Tiny Titan: “Tiny Titan has built a strong portfolio of popular arcade games with a positive cash flow which fits perfectly into our growth strategy. On Google Play alone, their games were downloaded organically a total of 796,757 times in the past 3 months. Tiny Titan is estimated to generate DKK 2.8m in revenue for the calendar year 2021. We believe that we can improve the monetization and make use of their assets to provide a solid revenue for years to come as well as it being an extra long-lasting game experience for the players in our game portfolio.”

Interview with CEO Søren Gleie

You have recently published that you will acquire 100 % of Tiny Titan Studios. Could you tell us some more about the company and what caught your interest in Tíny Titan?

With Tiny Titan studios especially the game Tiny Rails caught our eye. They have some quality assets with a very long lifetime getting high ratings and a huge amount of organic downloads but don’t earn very much. We believe we can improve the games KPIs across the board, and got them at a very good price even in the case we cannot.

In regard to future acquisitions, we have seen that both the acquisition of Xombat and Tiny Titan is within the same niche of games, is this what we can expect in the future as well?

We are definitely looking at games and studios with cross promotion potential with our current game portfolio.

What kind of potential do you see in Tiny Titan and what kind of synergy effects do you think will appear after the acquisition?

Integrating Tiny Titans games into our own organization will add some value in terms of having users install more of our games. Rewarded video ads in games give quite a low revenue, so being able to funnel users around in your own games first is of great value. Also just having an efficient organization geared for publishing and running a big game portfolio is something we have, compared to the rather small team that was running Tiny Titan Studios.

How would you summarize this year for Trophy Games?

A very exciting year. We have scaled the organization from 15 to 40 people, expanded our management and went public. We have two huge growth drivers other than acquisitions in terms of the Warhammer AoS: Soul Arena game and the transport manager series, as well as further scaling of Airline Manager. So all in all, we have never had better opportunities for growth than next year.

What can an investor expect of Trophy Games going forward?

Trophy Games has in 2021 been maintaining a very good growth rate and with 42m DKK cash at hand and no debt in a cash generating organization we have a lot of dry powder to pursue continuous growth. I think you can expect us to make good use of this, and actively follow the biggest growth opportunities without taking unnecessary risks.

Trophy Games Development A/S (“Trophy Games” or the “Company”) is a Danish game developer focused on challenging strategy games, currently showing a strong double-digit growth. The Company has had great success with developing so called football manager games and has now broadened its portfolio via the acquisition of Xombat ApS and the Airline Manager 4 (“AM4”) game, as well as the release of FIVE, an esports manager game, and the initiated global launch of the major IP-game Warhammer AoS S.A. In a Base scenario, Analyst Group estimates a revenue of DKK 79.9m in 2022, which based on an applied EV/S multiple of 2.5x yields a potential fair value of DKK 9.1 per share.