CI Games — An emerging European games publisher

CI Games is an experienced game developer and publisher, with headquarters in Poland, but serving a global player base from offices in Spain, Romania, the UK and the United States. With a 20-year track record, CI Games has established two franchises, SGW, which has sold over 12.5m units across multiple iterations, and LotF, which has sold in excess of 3m units. These games have established a loyal and committed player-base in the first-person shooter (FPS) and soulslike role-playing game (RPG) segments, which CI Games is seeking to build on with future games. In 2018, CI Games also launched its own indie games publisher, United Label.

In August 2021, CI Games announced a review of its strategic options, to include identification of a potential strategic investor, advised by Drake Star Securities.

Over the next five years, CI Games wants to establish itself as one of Europe’s major games developers and publishers, building on its soulslike, RPG and FPS expertise. It is following a path similar to Frontier Developments (AIM: FDEV) and Remedy Entertainment (HEX: REMEDY), building out its existing franchises, but also launching new games (based on owned as well as licensed IP) on a more regular basis. Currently, with two teams, new titles are launched every c 24 months, but from 2023 this should reduce to 18–24 months, with the intention of launching a major title every 12–18 months from 2024 based on a third team working alongside CI Games Warsaw and Hexworks.

CI Games’ latest title, Sniper: Ghost Warrior Contracts 2 (SGWC2), was launched in June 2021 to strong reviews, and has had very promising initial sales, with 560,000 units sold in the two months to 31 August 2021. This successful launch, together with ongoing digital sales and monetisation of the title, largely underpins the group’s results for FY21/22, leaving the successful launch of LotF2 in FY23 as the critical element of the investment case. We also assume that the next iteration of the SGW franchise will launch in FY23, but as the sixth iteration in an established franchise, we perceive the risk for this title to be significantly lower than for LotF2.

Management stripped the business back to its core and rebuilt its strategy following previous development challenges, which came to a head in 2017, with a disappointing reception to the release of SGW3 and the termination of a third-party contract to co-develop LotF2. Management is seeking to de-risk the development process and re-engineer CI Games to produce high-quality titles, to time and to budget.

The success of CI Games’ revised strategy will be judged by user reviews (as an indicator of end-user demand), Metacritic scores (as an indicator of quality) and ultimately in terms of units sold, delivering effective monetisation over the cycle.

With SGWC2 released in H121 (and on PS5 in Q321), we do not expect the next major release (LotF2) until H123, meaning that we expect FY22 to be a ‘lull year’ with a y-o-y fall in revenues. Given an approximate 18- to 24-month development time between iterations of the SGW franchise, we also expect the next instalment in FY23, though likely H223. We assume that CI Games would like to run a third development team in parallel with the existing two teams (although the company has not confirmed this), meaning that we would expect a new IP to be launched in FY24 with major game releases following every 12–18 months thereafter.

To these release assumptions, we add a low level of revenue from United Label (a 78.4% held subsidiary), building over time as more niche titles are released, as well as CI Games’ back catalogue, principally from prior releases from the SGW franchise.

Ostensibly, with a solid performance from SGWC2 in FY21, investors are being asked to look ahead to FY23 and beyond in order to ascribe anything like full value to CI Games’ shares. Our forecasts are built on the gating assumption that LotF2 and the next iteration of the SGW franchise are both launched in FY23 and achieve moderate to good sales figures, of 2.5m and 1.5m digital units, respectively. Thereafter, we assume games are launched every 12–18 months, offering a broad and increasingly stable future revenue profile.

CI Games delivers strong margins in years with a major new title release (FY21, FY23), but is also profitable in years between releases (FY20, FY22), despite lower revenues. As with other Polish-based publishers, EBITDA margins for the forecast period (c 50–65%) are expected to remain above European peers (c 35–40%) through cost-effective development expertise and good process controls. For FY21, we estimate revenues of PLN93.7m, 104% y-o-y growth over FY20 (PLN46.0m), almost doubling H121 revenues, with EBITDA of PLN62.4m (a 66.5% margin). In FY22, we expect no major new releases and, as such, forecast a 41% fall in revenues to PLN55.7m, with EBITDA of PLN33.5m (a 60.2% margin). In our base case for FY23, we assume digital unit sales of 1.5m for the next iteration of the SGW franchise and 2.5m for LotF2, leading to revenues of PLN256.7m with EBITDA of PLN132.1m (51.5% margin).

Buoyed by exceptional demand for games during lockdown and boosted by the start of a new console transition, the global games industry showed year-on-year growth of over 20% in FY20 (Newzoo). Market growth is expected to pause in FY21 (1.1% fall year-on-year), before growth resumes in FY22, with 8% annual growth from FY21–24. Driven by global growth as well as increasing demographic penetration, we expect that the games sector will remain high growth for the foreseeable future.

With FY23 critical to the investment case, investors are being asked to look through FY22 to potential higher levels of profitability in FY23 and beyond. CI Games has learnt from the challenges it faced in 2017 and reconfigured its strategy to deliver consistently higher-quality games. Currently CI Games holds a relatively narrow portfolio of titles, so a key risk is whether management can deliver successive titles of increasingly higher quality, to budget in a timely manner. Recent launches indicate that quality is steadily improving. As a people-based business, CI Games is reliant on the quality of staff that it can attract and retain. Management has chosen to continue with a strategy of distributed development post-pandemic, allowing the business to attract key talent who might otherwise not be prepared to relocate to Warsaw. However, this increases execution risk. CI Games is reliant on a stable tax regime and plans to use Poland’s IP box tax relief to reduce its effective tax rate from 2022. With an increasingly European cost base and revenues principally denominated in US dollars, euros and pounds sterling, CI Games reports its results in Polish zloty, although it seeks to hedge FX risk.

CI Games trades on 4.0x FY21e EV/EBITDA and a P/E of 8.9x, with its key FY21 title already released and performing well. Based on our base case assumptions, CI Games trades on 1.9x FY23e EV/EBITDA, together with a P/E of 3.1x. This compares to the peer group EV/EBITDA of 13.1x and a P/E of 23.4x. With FY21/22 already largely underpinned by the successful launch of SGWC2 in H121, if CI Games can successfully meet our FY23 targets, and build a broad-based and sustainable business thereafter, then both our discounted cash flow (DCF) analysis and peer multiples indicate that there is the potential for 5x upside as a reward for early investors in this growth story. Investors should closely monitor development progress at LotF2.

CI Games is a global video games developer and publisher, founded in 2002 in Warsaw and listed on the Warsaw Stock Exchange. It focuses on premium AA+/AAA multi-platform games, currently centred around two main franchises: a FPS title, SGW; and a fantasy role-playing game action title, LotF. The company has an in-house development and publishing arm, CI Games, and a third-party publishing arm, United Label, targeting non-mainstream titles from independent (indie) games developers.

With a headcount now in excess of 150 people, and with offices in five countries (Poland, Spain, UK, United States and Romania), CI Games has sold over 15m units and established two franchises. CI Games publishes titles both digitally and physically and distributes product across all major console platforms (PS4, PS5, Xbox One, Xbox X/S, Nintendo Switch) and PC (Steam, GoG). Despite being based in Poland, the group has minimal domestic sales (typically less than 1%), and although CI Games does not break down its international sales, in line with the industry, we would assume that the vast majority of players will come from the United States, the UK and Europe.

CI Games was founded as City Interactive in 2002, through the merger of three video game companies: Lemon Interactive, We Open Eyes and Tatanka. In 2007, City Interactive merged with Oni Games and Detalion before listing on the Warsaw Stock Exchange later that year.

City Interactive released its first sniper title, Sniper: Art of Victory, in 2008 and then Sniper: Ghost Warrior in 2010, launching the eponymous franchise, before announcing its change of name to CI Games. SGW2 was launched in 2013 and then its second franchise, LotF, co-developed by Deck13, was released in 2014. After problems with SGW3 in February 2018, CI Games’ development team was shrunk to 30 staff, before being rebuilt. United Label, a new publishing arm for independent games, was established later in 2018. CI Games currently has a headcount of over 150 people, of whom c 120 are directly involved in game production, with a team of over 60 people working on the next instalment of the SGW franchise and a similar sized team working on LotF2.

CI Games develops, publishes and distributes video games, both digitally and physically:

CI Games did not release a major title in FY20 as it completed work on SGWC2, released in June 2021. This partly accounts for the significant fall in physical sales in FY20 (25% of total revenues) versus FY19 (55% of total revenues), as boxed product sales typically tend to fall in the month after a major release. This combined with the lockdown surge in digital sales seen throughout the games industry helped to sustain digital sales at an elevated level in FY20.

With the release of SGWC2, physical sales rose to 33% of total sales in H121. We do not expect material further physical sales in H221 as there are no further releases planned, and as such we expect the proportion of physical to remain below 20% for FY21. Thereafter, momentum is clearly for physical sales to tail-off substantially over the next two to five years. As can be seen in Exhibit 3, the higher margins achievable on digital sales and the increasing penetration of digital sales in CI Games’ revenue mix should lift group margins over this transition period.

Sniper: Ghost Warrior is the best-selling first-person sniping franchise of all time, having sold over 12.5m units over more than a decade.

Sniper: Art of Victory was the first sniper game developed and published by CI Games in 2008. Since 2010, a further five titles have been released as part of the SGW franchise:

SGW (2010) was a commercial success, selling over 1.5m units in the 12 months after launch. SGW2 (2013) achieved similar sales figures. SGW3 (2017) was developed on a larger budget and was intended to break the franchise out of its tight, first-person sniper niche. Unfortunately, with disappointing reviews given its loftier ambitions and increased budget (Metacritic: 59), SGW3 only sold 1.3m units in its first year. Based on this misstep, CI Games then decided to refocus on lower-budget AA releases, with more limited gameplay.

The latest two releases in the franchise, Sniper: Ghost Warrior Contracts (November 2019) and SGWC2 (June 2021), have followed a similar formula, with the games right-sized to optimise returns, providing focused content (c 20 hours of single-player gameplay) at an appropriate budget, targeted largely at the core of existing players. SGWC had sold over 1m units as at January 2021. Following its release in June 2021, SGWC2 has already broken even by late July 2021 (against a development and marketing budget of c €6.5m). In the first 10 days following launch, SGWC2 delivered a 170% uplift in digital revenue versus SGWC and had sold 560,000 units by the end of August (the first circa two months of sales). Although it is too early to know what units SGWC2 will ultimately deliver, it appears on track to sell over 1m units in its first year of sales.

The enduring nature of the back catalogue is highlighted by the H121 revenue figures, where, although sales of SGWC2 accounted for 68.5% of revenues, the past four iterations of the franchise still collectively accounted for over 23% of H121 revenues (PLN11.4m) (Exhibit 4). The remaining revenue came from continuing LotF and United Label sales.

LotF is a soulslike action RPG, a sub-genre typically characterised by difficult, high-risk combat with hard-hitting enemies, sparse checkpoints and enemies dropping souls, typically in a dark-fantasy setting. The genre was named after the Dark Souls series developed by FromSoftware, published by Nintendo. The original LotF title was co-developed by German studio Deck13 Interactive with a budget (including marketing) of PLN40m (c US$10m), a AAA title at the time. Despite a Metacritic score between 68–73 (depending on platform), the game only went on to sell c 1m units in the 12 months after launch, failing to deliver on CI Games’ ambition for what was the group’s highest budget release at the time. However, in the seven years since launch, LotF has sold over 3m units (with 10m players including subscriptions), generating over PLN100m in sales revenue and c PLN50m in profits.

After several false starts with first Deck13 and then Defiant Studios, LotF2 is now under development by Hexworks, CI Games’ internal studio based in Barcelona and Bucharest. Given the group’s ambitions for the title, we estimate a development budget of c US$15m (PLN60m) and expect the game to be launched as a full price product on the PC, PS5 and Xbox Series S/X. Although no launch date has been confirmed, we expect the game to be released in H123.

Following initial success with the SGW franchise, CI Games’ subsequent track record is mixed, although the group is now back on an improving trend. The challenges crystallised in 2017 following the release of SGW3 to a low Metacritic score of 55–59, together with the termination of Deck13’s contract to co-develop LotF2.

The original LotF was co-developed by Deck13 and launched in October 2014. The studio was in pre-production on LotF2 thereafter but left the project in 2015. CI Games sub-contracted Defiant Studios to take over development of LotF2 in 2018, however, Defiant’s contract was also terminated at vertical slice (the first snapshot of the full gameplay) in 2019. Since then, CI Games’ internal studio, Hexworks, has picked up the title, which we expect to be released in H123 as a dark fantasy soulslike game.

The latest two releases in the SGW franchise, SGWC1 and SGWC2 (November 2019 and June 2021 respectively), show that lessons have been learnt from the quality issues and slippage evident on LotF2 and SGW3. After an ambitious approach to SGW3, CI Games significantly reduced play-through length for the subsequent SGWC1 and SGWC2, focusing on delivering higher-quality content to appeal to existing players of the franchise.

From its previous experience on LotF, the management team has sought to re-engineer and de-risk the development process to produce LotF2 as a high-quality title, to time and to budget.

Initiatives have included:

The success of this revised strategy will be judged by user reviews (as an indicator of end-user demand), Metacritic scores (as an indicator of quality) and ultimately units sold for future game releases. We have already highlighted the improving trend of CI Games’ Metacritic scores since the low point of SGW3 and SGWC1, released in 2017 and 2019 respectively. If CI Games is to establish a strong sustainable franchise, management recognises that LotF2 will need to raise the quality threshold further.

In 2018, CI Games founded United Label, a new indie publishing arm specialising in ambitious smaller titles. United Label subsequently listed on NewConnect (Warsaw’s alternative investment market) in January 2021, raising PLN4.1m for its publishing business, with CI Games holding a 78.4% stake following the IPO.

United Label was established to work with innovative and experienced independent developers, offering a flexible publishing structure that works for both parties. So far, United Label has worked with four studios: Fallen Flag, Lunaris Iris, Odd Bug (now working on its second title with United Label) and Polygon Treehouse.

United Label’s first title, Röki, was released in July 2020 (PC, Nintendo Switch) and received positive reviews from both critics (Metacritic: 79) and users (user review: 8.5). In March 2021, the game broke even for CI Games, recouping all production and marketing expenses. Röki received a nomination at The Game Awards in the ‘Best Indie Debut of 2020’ category, was nominated for ‘Best Debut Game’ and ‘Best British Game’ at the BAFTAs in 2020 and has been nominated for ‘Best Narrative’ at the 2021 Develop:Star Awards, where the developer, Polygon Treehouse, has also been nominated for ‘Best Micro Studio’.

United Label launched its second title, Eldest Souls (RPG soulslike adventure), in July 2021 on PC, Switch, PS4/5, Xbox Series S/X, with Tails of Iron (an adventure RPG-lite) released in September 2021 on PC, Switch, PS4/5, Xbox Series S/X. The release date for Horae (a rogue-like RPG), due on the PC, has yet to be confirmed.

Over the next five years, CI Games wants to establish itself as one of Europe’s major games developers and publishers, building out its existing franchises, but also launching new games on a more regular basis. Currently, with two teams, new titles are lunched every c 24 months, but from 2023 this should reduce to 18–24 months (assuming a third team works alongside Hexworks and CI Games Warsaw), with the intention of launching a new major title every 12–18 months from 2024.

Companies with successful strategies that CI Games would like to emulate include Frontier Developments (four established franchises in the simulation and RTS genres, with two further titles under development); Paradox Interactive (nine franchises in the RTS and RPG genres); and Remedy Entertainment: four teams working across five games).

Exhibit 9 shows an indicative revenue profile for CI Games, building up to title launches every 12–18 months and benefiting from the long-tail of digital sales, supported by downloadable content (DLC) and the games-as-a-service business model.

CI Games’ strategy is to deliver significant growth through regular releases of genre-specific games to a loyal and growing global audience, with a business model that allows simultaneous production of multiple high-quality games spanning a variety of genres. As part of its strategy, CI Games intends to move SGW more into the mainstream, establishing the IP within the FPS genre (whereas today it sits within the tighter sniper sub-category) and increasing the title’s accessibility and appeal to a broader audience. Management also intends to establish United Label as a high-quality indie publisher.

CI Games has made the decision to continue with an international development strategy, partnering Polish (Warsaw) with European development expertise (Barcelona and Bucharest), and an international management team (Exhibit 10). This is a continuation of the remote development strategy implemented by necessity during the COVID-19 lockdown, recognising that Polish development capacity remains constrained, leading to high wage inflation. This strategy allows CI Games to attract and retain experienced senior staff and developers, who would otherwise not be prepared to relocate to Poland. As a result, CI Games has built teams in a number of European countries, notably Spain and Romania (Hexworks), as well as the UK. CI Games also has a US-based distribution business.

Market analyst Newzoo estimates that almost three billion gamers are set to generate global revenues of c US$176bn in 2021, representing a small growth hiatus overall in 2021 (a year-on-year fall of 1.1% globally) after the year-on-year growth of more than 20% seen in 2020, driven by lockdown demand for content. From 2021–24 more regular growth is expected to return, with Newzoo estimating annual growth of 7.6%, building to a total market size of over US$219bn by 2024.

The Europe, Middle East and Africa (EMEA) and North American markets together are estimated to represent c 46% of 2021 global revenues, with Asia-Pacific (dominated by China) representing 50% of total revenues, although we would note that the increasingly tough regulatory and political climate in China, particularly restricting children’s game time, may slow future growth. 52% of global revenues were on mobile devices (smartphones and tablets), with 28% on console, with the remaining 20% on PC (both via download and browser-based games). CI Games has no material exposure to China.

Based around the release of SGWC2 on 4 June 2021 (for PC, PS 4, Xbox One, Xbox Series S/X; H120 included no major game releases), CI Games reported a strong first half to the year, with revenues up 82% y-o-y. Gross margins also strengthened to 59% in H121 (H120: 44%) driving gross profit up 145% and EBITDA up 77%, with an H121 EBITDA margin of 60% (H120: 61.8%). End June 2021 net cash stood at PLN15.2m.

The vast majority of H121 revenue was generated in the second quarter (Q221: 81%), with the release of SGWC2 leading to Q221 revenues of PLN39.7m. CI Games capitalises and amortises game development, with associated costs incurred prior to release being included in intangible assets. The intangible asset is then amortised through the P&L (within cost of goods sold) over the economic life of the title, not longer than 5 years. For this reason, EBITDA is typically higher than gross profit. Based on this approach, CI Games reported a development project intangible asset of PLN58.1m (FY20: PLN54.4m), covering development costs from both SGWC2 and ongoing development work for LotF2.

Physical boxed product represented 33% of total revenue in H121, but given the vast majority of physical product sales occur within the first month of release, management expects the continuing revenue profile from SGWC2 to be digital, with consequently reduced production costs in H221, supporting margins. Management also noted that the selling costs in Q221 included the majority of the marketing costs for SGWC2, with minimal additional marketing expenses expected in H221.

SGWC2 on PS5 was released in Q321 (24 August 2021).

We have built our revenue estimates based around an assumed game release schedule (see Exhibit 9). With SGWC2 released in H121 (and on PS5 in Q321), we do not expect the next major release (LotF2) before H123, meaning that we expect a fall in revenues in FY22. Given an approximate 18–24 months development time between iterations of the SGW franchise, we also anticipate the next instalment of the SGW franchise in FY23, though probably in H223. With this being the sixth title in an established franchise, with a proven audience, we believe the downside risk is limited. Instead, investors should focus on progress on LotF2, which will follow approximately nine years after the successful release of LotF, with an assumed development budget of $15m, at least double that for SGWC2 (development and marketing budget of €6.5m). As such, in Exhibit 19, we have modelled low, base and upper case scenarios for LotF2, reflecting digital sales of 1.5m, 2.5m and 4.0m units respectively.

Thereafter, assuming CI Games decides to run a third development team in parallel (although this strategy is our own assumption and has not been confirmed), we would expect a new IP to be launched in FY24 with major game releases following every 12–18 months thereafter.

To these release assumptions, we add a low level of revenue from United Label (a 78.4% held subsidiary), building over time as more niche titles are released, as well as CI Games’ back catalogue, principally from prior releases from the SGW franchise.

Driven by global growth as well as increasing demographic penetration, we anticipate the games sector will continue to deliver high growth for the foreseeable future. As set out in the market section, Newzoo estimates 8% annual growth from FY21–24.

As SGWC2 was released shortly before the end of H121, we see significant sales of the title continuing in H221.

Although we have not explicitly modelled future years, from FY24 onwards, we assume major new releases every 12–18 months, together with increasing downloadable content (both free and paid for), which should lead to an ever broader portfolio of titles, increasing the percentage of revenues from back catalogue, improving revenue visibility as well as the predictability of the business through a smoother revenue profile, less exposed to any single game being a ‘hit’ or ‘miss’. As we have seen with Frontier Developments and Remedy Entertainment, which trade on 34x FY22 (year-end May) and 44x FY21 consensus estimates, respectively, investors are prepared to attribute high valuations to such broad-based, growth portfolios.

CI Games plans to use Poland’s IP box tax relief to reduce its effective tax rate to 5% for qualifying development revenue from 2022. With the IP box tax regime being implemented in Poland, we assume an effective tax rate of 10% in FY21, rising to 20% from FY23 onwards.

CI Games has a relatively straightforward balance sheet, with fixed assets principally composed of intangibles, of which the vast majority relate to capitalised game development costs (both internal as well as advances to third party developers), which are then amortised through the P&L over the life of the game.

The group has no long-term borrowings and had net cash of PLN22m as at 31 December 2020, following a share placing in September 2020 that raised PLN29.1m (21m shares issued at a price of PLN1.39) to provide additional working capital as well as to fund development of LotF2. As at 30 June 2021, net cash stood at PLN15.2m, allowing for PLN5.0m of lease labilities. With positive net cash flow in FY21–23, we estimate net cash of PLN33.7m in FY21, rising to PLN70.5m in FY23.

CI Games generated operating cash flow of PLN40.6m in FY20. We forecast PLN44.8m and PLN42.9m in FY21/22 respectively, mainly due to sales of SGWC2 and the back catalogue, climbing to PLN76.3m in FY23. Capitalised development costs were PLN19.9m in FY20 and we expect similar levels in FY21–23, with PLN20.6m assumed across the period. Capex was 5.6% of revenues in FY20 (PLN2.6m), so we have assumed capex remains fixed at 5.6% as a percentage of revenues over the period FY21–23, rising from PLN5.3m in FY21 to PLN14.5m in FY23.

CI Games does not currently pay a dividend, preferring to reinvest cash in the business.

In looking at CI Group’s valuation, we primarily focus on a comparable company approach, validated by a DCF. Currently, we would argue that CI Games’ valuation ignores the group’s improving execution and its future prospects, by default, assuming that future titles will disappoint. However, we believe that the market view is overly negative and consequently there is a probability of a material upside surprise. Both the peer analysis and DCF argue for a higher valuation, at a multiple of the current share price, once investors get comfortable that CI Games will deliver on estimates for FY23.

Firstly, to determine an appropriate comparable company peer group, we have segmented the potential universe of approximately 100 companies through applying the following filters:

The games industry has benefited from increased demand over the last 18 months as a result of COVID-19 related lockdowns. Significant numbers of new players have started playing games, with existing players playing for longer, driving insatiable demand for new content. In parallel, there has been a console transition with both Sony and Microsoft launching their next-generation consoles, the PS5 and Xbox Series X/S, respectively. As can be seen from the peer group, the profitability and valuations of content providers, such as CI Games, remain elevated.

It is also notable that the Polish comparators (CD Projekt, Playway and 11 Bit Studios) have some of the highest EBITDA margins among the group, benefiting from the cost-effective development talent available in Poland. Although it is more international, CI Games sees some of these benefits.

As we have already discussed, given its launch schedule, FY21 is expected to be a relatively strong year for CI Games, with FY22 a fallow year and FY23 likely to benefit from two launch titles, broadening the portfolio thereafter. The peer group is trading on a mean EV/EBITDA of c 22x in FY21, 16x in FY22 and 13x in FY23. This compares with CI Games, on 4.0x our FY21e EV/EBITDA, rising to 7.5x for FY22, before falling to 1.9x in FY23. Similarly for P/E multiples, the peer group trades on almost 34x FY21 earnings, c 27x FY22 and 23x FY23. This compares to CI Games on 8.9x our FY21e P/E, rising to 24.7x FY22e and then only 3.1x FY23e.

If CI Games successfully delivers on our FY21e estimates, what this suggests is that there could be potential upside of as much as 6–7x once the market starts to focus on, and get comfortable with, CI Games delivering LotF2 to schedule, to budget and at high quality in FY23. This would reassure the market on our FY23 earnings forecasts.

As we have noted previously, we have used a base case assumption of 2.5m digital unit sales for LotF2. Our upper case envisages sales of 4.0m digital units, which would add another c PLN77m of revenues to FY23, further reducing the FY23 valuation multiples.

Looking at the net present value (NPV) of future cash flows, we derive a core value of PLN6.96 per share, almost 5x the current share price of PLN1.49. This valuation is based on an explicit forecast period of 2021–31, before adding a perpetuity calculation, and a WACC of 8.6%. We show the sensitivity to different WACC assumptions in Exhibit 22, with our key valuation assumptions in the table below.

Our forecasts are built on the gating assumption that LotF2 and the next iteration of the SGW franchise are both launched in FY23 and achieve moderate to good digital sales figures, of 2.5m and 1.5m units respectively. We assume games are launched every 12–18 months thereafter, with a broadening and increasingly stable future revenue profile.

The resultant NPV valuation largely reinforces the conclusions of the peer group valuation, indicating that if CI Games can successfully achieve its FY23 targets, and build a broad-based and sustainable business from there, then there is the potential for 5x upside as a reward for early investors to this growth story.

A summary of the principal risk factors relating to CI Games is set out below: