Citi sees significant upside at Team17

3rd May 2024 09:52

(Sharecast News) - Citi has reiterated its 'buy' rating for British video-game developer Team17, saying it sees significant upside to its valuation as operations stabilise.

"Team17 is at an interesting juncture in its trading history. While continuing to deliver growth in recent years, partly aided by acquisition, the cooling of sentiment within the video games industry coupled with disappointing underlying profitability has weighed not only on forecasts but also on the multiple," said Citi analyst Thomas Singlehurst.

The company reported a loss before tax of £1.1m in 2023, compared with a profit of £28.7m the year before.

"2024E, however, sees a new CEO, who is clearly focused in the short-term on increasing the group's rigour and discipline around its commercial practices and how it allocates capital."

Citi expects a "stabilisation" of organic performance this year, with a small increase in revenue and a rebound in margins, before an acceleration thereafter. If Team17 can deliver, the stock could see a rerating, Singlehurt said.

Shares currently trade at 12 times prospective earnings, compared with Europe-listed peers at 16x and US peers at 20x.

The stock was trading 3.2% higher at 9.55p by 1058 BST.