• Strong sales growth in Q3, but 5% below our expectations
• We cut 2025e EBIT 1% but raise 2026e 4% on lower opex
• Share is trading at 7-5x EV/EBITA, 15-10x P/E on '25e-'26e

Sales +20% y-o-y in Q3, but 5% below ABGSCe

Flexion delivered Q3 numbers slightly short of our expectations. Sales of GBP 18m corresponded to a 20% increase y-o-y, but were 5% below ABGSCe, while EBIT was GBP -0.6m vs. ABGSCe GBP 0.6m, impacted by slightly higher depreciations. That being said, Flexion has a strong pipeline, with King's flagship game Candy Crush (top 10 grossing mobile game globally) entering the portfolio, which we expect will have a positive impact on growth in 2025. Management guided for revenue of USD 26-30m in Q4 (GBP 21-24m), which is a tad below our pre-Q3 estimate (GBP 25m). We therefore cut our sales estimates by 5-3% for '25e-'26e. While depreciations have remained elevated near-term, we expect depreciations related to game distribution rights with Scopley to decrease from 2025. We forecast slightly lower opex, which means that we make more limited revisions to EBIT in 2025e (-1%) and slight positive revisions to 2026e (4%) despite slightly lower sales.

Positive market developments

As we have commented before, regulatory pressure on Google and Apple from the EU is forcing them to allow developers to bypass their respective marketplaces, Google Play and App Store. This is something management has said is creating more demand for Flexion's services. Now, we can see that the pressure has continued to increase in Q3, with Epic winning over Google in the US courts, which management views as an important milestone for the industry, potentially now making both the EU and US markets ready for disruption.

Finally, leaving the audit issues behind

We were also happy to see that Flexion's 2023 audit now is completed, with the new auditor siding with Flexion on the issues raised by its former auditor. Based on our updated estimates, the share is now trading at 7-5x EV/EBIT '25e-'26e (15-10x P/