Berenberg initiates coverage on TinyBuild at 'buy'

Berenberg stated that TinyBuild derives more than 70% of revenues from its back catalogue and generates earnings before interest and tax margins of roughly 40% and a return on capital expended of about 80%.

While the analysts said their base-case earnings growth was about 17% over the next few years, they also noted that this could be "substantially higher" should certain scenarios play out.

"Despite TB's strong run since its debut on the public markets (its IPO is now the second-best performing in Europe in 2021), recent game launches and social media KPIs on upcoming games look strong as reported in an update from the company on 30 March," said the analysts, who also issued the stock with a 295.0p target price.

The German bank also pointed out the TinyBuild has "principally grown organically", but said it believes the Seattle-based firm could add "considerable value" through both a conventional approach of buying revenue-generating businesses and a unique model called "acquihiring", by which TB hires a development team or studio for potentially no upfront consideration yet still retains all rights to intellectual property.

"Our analysis suggests earnings could be more than 43% higher than our base-case 2023 forecasts should TB deploy just c$20m pa on M&A."