Rovio IPO valuation is too damn high!

Rovio is currently IPOing to the Helsinki stock exchange. Taking part in IPOs has been quite lucrative in the near past, so I’m definitely interested! I read Rovio’s IPO prospectus and will publish my notes here. The format ain’t too polished but here goes.

Stock and IPO basics

Stock:

Number of stocks total currently = 75.3 million

Number of new stocks being issued = 2.7 million

Number of stocks after IPO = 78.0 million

Stock sellers get 373 million euro (=exit). Rovio gets 30 million euro only from stock issuance.

IPO:

Number of stocks offered to general public = 2 million (minimum is 100 stocks so 20k investors with minimum would do it)

Number of stocks offered to institutions = 35.2 million (~95% of stocks are going to institutions)

..of which institutions’ already committed number of stocks = 20.2 million (15 million stocks up for grabs)

Dates:

IPO ends Tuesday 25^th of September at 16:00

Results of IPO out 28^th of September

Trading commences on 29^th of September at pre-list and 3^rd of October on main list

Key numbers from end of H1 2017 (trailing 12 months):

Income statement:

Revenue 266 million (=S)

Operating income 29.5 million (=EBIT)

Net income 20.3 million (=E)

Cash flow statement:

Cash flow from operations 40.8 million (=CFFO)

Balance sheet:

Cash 44.9 million

Debt 50.0 million

Debt/CFFO = 1.2

Total assets 147 million (=B)

Net gearing -35% (=no net debt)

Profitability and valuation

EPS for H1 2017 (6 months) = 0.18 euro = low

EBIT margin 14%

ROE ttm 31%

low end of scale 10.25 euros per stock -> Market cap = 800 million (=P)

high end of scale 11.50 euros per stock -> Market cap = 897 million (=P)

P/B = 5.4 – 6.1

P/E = 39 – 44

P/S = 3.0 – 3.4

P/CFFO = 20 – 22

Other considerations

Future: Mobile gaming estimated to be growing at 14% through 2020.

No major operative risks being seen: Second movie is produced by Sony, not Rovio.

Number of personnel is reduced to less than half of peak (848 -> 376) (=lean).

Operations seem quite professional but still somewhat of a “one hit wonder”.

Leadership team (execs and board) all have skin in the game in the company via stocks and/or options.

Growth in previous months is very high but the sustainability of such growth seems unlikely.

Rovio leadership’s guidance for H2 2017 is “significant EBITDA increase […] Over 10% is considered ‘significant’”

Conclusions

One thing holding me back is my personal disinterest in engaging in Rovio’s games. In the reports one can see that the monthly average revenue per paying user (=MARPPU, one of Rovio’s KPIs) is over 30 euros is stunningly mind-boggling to me! Also, the Angry bird brand seems a bit past is Best before date, but that’s not the worst part.

The valuation is too damn high! ..But I may still try and juicy a couple of euros from “greater fools” by partaking in the IPO with a very short term outlook. Another strategy I’m pondering is abstaining for now, checking how the stocks opens in the first minutes of trading and try and do some “play moves” then.

Happy trading!