Deutsche Bank has adjusted its stance on Team17 Group Plc (TM17:LN) (OTC: TSVNF), moving from a "Buy" to a "Hold" rating and setting a new price target of GBP3.00. The revision comes amid expectations of a downturn in new release sales from the company's Games Label in the fiscal year 2024, which could impact growth into fiscal year 2025.
The bank's analyst cited concerns over the potential for a multi-year low in sales of new releases from Team17's Games Label. The anticipated decline is seen as a risk to the company's growth expectations for the following year.
The forecast for Games Label revenue has been adjusted to reflect a 5% decrease in fiscal year 2024 and a 4% decrease in fiscal year 2025, a change from the previously anticipated 1% increase and 5% increase, respectively.
Despite the downgraded forecasts for the Games Label, Deutsche Bank expects other segments of Team17's business to perform better. The growth of astragon and StoryToys is anticipated to partially offset the decline in Games Label revenue.
With StoryToys subscribers now exceeding 350,000, the bank sees potential for further growth through cross-app subscriber conversions, new intellectual property (IP) partnerships, and expansion to new platforms.
Additionally, the bank predicts that Farming Simulator 25 will be a strong contributor to astragon's performance in the second half of the year, along with an own IP title expected to drive results in fiscal year 2025.
Despite these positive factors, Deutsche Bank has reduced its sales forecast for Team17 by 5% to £162.9 million for fiscal year 2025 and by 4% to £172.3 million for fiscal year 2026, placing these figures 3% below the consensus through both fiscal years. Consequently, there is a projected 5-6% reduction in adjusted EBITDA and adjusted EPS forecasts for fiscal years 2025 and 2026.
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