Superscape was founded nearly twenty years ago, and has been dedicated throughout its history to the development of ground-breaking software technology for the creation and delivery of innovative, high quality interactive 3D applications.
Over the years, Superscape has amassed unparalleled expertise and experience in the development of 3D software capable of working within the constraints of limited memory devices, slow processor speeds and strictly controlled file sizes.

Drawing on this knowledge, Superscape has established a world-leading position in the development of industry-standard 3D technology and applications for mobile devices. The company's Swerve technology has been developed specifically for wireless environments in close collaboration with ARM, and comprises a 3D engine (Swerve Client), authoring tools (Swerve Studio) and a broad portfolio of 3D content, with particular emphasis on 3D games. Swerve is being adopted on a global basis by many of the mobile industry's leading players, together with world-renowned content and brand organisations.

Superscape has corporate headquarters in Hook, Hampshire (UK) and San Clemente, California (USA) with regional offices in Tokyo and Sydney. The company is quoted on the London Stock Exchange (LSE: SPS).



Superscape (SPS) has received various tips in the press and by Analysts recently which will certainly give impetous to the share price. Indicators are looking good with the RSI rising off an oversold position and the MACD crossing showing BULLISH signs for the stock.

The mobile gaming market is still in it's infancy but the projected revenue is enormous. Mobile operators are looking at tapping the Gameboy market as they feel that users will not want to carry around a multitude of technology and if they have a mobile phone which can double as a gaming station than people will prefer this option.

People should also look at the recent contracts which SPS have signed for their technology. This is a technology company which could well be a great success in 2004.

Company website

http://www.superscape.com/

Please also check the SPS thread at
www.iii.co.uk

!CHARTS

Good opportunity to add today prior to the next move IMO. See you all in a few weeks. Have faith.

skids

I agree with you Skids, I think the price is just pausing for breath as it's had quite a substantial rise over the last few days.Christmas is approaching fast and can only bolster the current situation.I wonder if there will be anything in Shares Magazine tomorrow?

Tipped as a 'market mover' in the FT today.

Courtesy of peg42 on iii:

A game of mobile potential, ripe for the playing
By Chris Flood
Published: October 21 2004 03:00 | Last updated: October 21 2004 03:00

Leading mobile phone operators will be marketing new 3G handsets heavily in the run-up to Christmas.


One key attraction will be playing 3D mobile games on the new phones. Growth in customer demand for mobile entertainment such as ringtones and downloadable games has been explosive.

One potential beneficiary is Superscape Group, the 3D software company.

Over the past 10 weeks, Superscape's shares have shot up 87 per cent, closing at 57.5p yesterday, as analysts have enthused about its strategy of focusing on mobile gaming content.

Paul Kavanagh, of broker Killik, said: "Where they stand now is that a content owner can come to Superscape to build a game in both 2D and 3D markets: very few competitors can achieve that at the moment."

Uncertainty surrounds forecasts for the industry as little information about downloads is available from mobile operators. But Verizon of the US, the market leader, reported customers downloaded more than 12m games applications in the first five months of 2004. Superscape has signed licensing agreements with content providers such as Disney and Sony Digital Pictures. Rapid growth is expected. The company also benefits from the lower development costs and shorter development times of mobile games compared with normal console games.

Superscape has signed up 11 network operators, accomplishing a key strategical aim of developing a distribution platform. This provides one of the big attractions of Superscape's business model - its huge potential for growth. With a typical retail cost per 2D game of $5 in the US and 5 in the UK (a 40 per cent premium is expected for 3D), revenue growth is expected to be strong.

Assad Malic, of house broker Evolution Securities, is forecasting revenues will increase from 4.5m this financial year (ending January 2005) to 26.7m in 2006-07. Evolution is forecasting pre-tax losses of 5.3m this financial year and pre-tax profit of 7.6m in 2006-07. Chris Flood

Buy the Shares Magazine today to read the 'verge of breakthrough' of Superscape - set for a 'explosive' fourth quarter - BUY

Closed at 62p today...looks like 100p is easily reached by X'mas.

100p, wow that would be 6 bagger;)

I bought SPS in may at 33p so obviously I'm happy. I have no idea what price target to set, but all newsflow is positive and institutions have started to buy in. SPS appears to have a near monopoly in their area of expertise and if 3G phones really do what it says on the can, sales should take off along with the share price. i am holding to see how xmas develops.

Are in short term or long, i think 60p in the short term. But by 2008 if the projections are true, 60p will seem very, very, very cheap. Im back in long term, cannot see my self looking to sell for at least 3 years, unless we have bad news of course.

Found this on newratings.com. Appears to be an American website. Superscape are promoting themselves at every opportunity.


Superscape Features Innovative 3D Entertainment for Java and BREW Mobile Phones at 3G World

Tuesday, October 12, 2004 0:00:00 AM ET
PRNewswire

HOOK, England, October 12 /PRNewswire/ --


Stand number: 1310
14-18 November 2004
3G World Congress & Exhibition
Hong Kong

HOOK, England, October 12 /PRNewswire/ --

Superscape Group plc, leaders in revolutionary entertainment for mobile phones, will be exhibiting the latest titles in its portfolio of 3D games at this year's 3G World Congress. These include Evel-ution (based on Evel Knievel's stuntman exploits), AMF Xtreme Bowling and Street Hoops.

The company's technology and games are already well-recognised in Asia. A number of Superscape games are embedded in the recently launched Motorola E680 in the Pacific Rim and will also be featured at a high profile launch of this phone in Taiwan and Hong Kong in mid-October.

Superscape's Swerve is the world's first internationally-endorsed M3G Java standard (JSR 184) technology for the delivery of innovative 3D games on mobile phones. Developed in collaboration with ARM, and working with major wireless organisations including Nokia, Superscape's Swerve technology has also been extended for Qualcomm's BREW environment.

In addition to working with Motorola, Superscape has also been selected as the solution of choice for 3D games and entertainment by Siemens, Samsung and many global network operators including China Mobile, Verizon, Vodafone, TMobile and O2. Leading entertainment organisations, including 20th Century Fox, Disney and Universal Studio, have licensed the use of their IP (intellectual property) to Superscape to extend the reach of their brands as innovative mobile games.

About Superscape

Superscape is the leader in revolutionary entertainment for mobile phones. The company was the first in the world to develop and launch international standard M3G (JSR 184) compliant solutions for the delivery of innovative games on mass-market handsets.

Superscape is quoted on the London Stock Exchange and has corporate offices in Hook, Hampshire (UK) and San Clemente, California (USA).

Note: if you would like to meet with a member of Superscape's management team during the 3G event, please contact Maggie Templeman (mtempleman@superscape.com) to set up a convenient time.

www.superscape.com

Superscape plc

Maggie Templeman, Director, Corporate Communications, Superscape Group plc, Telephone: +44-1256-745769, Email: mtempleman@superscape.com

I am standing by my previos posts, I think 100p(chinese keyboard cant find pound sign)is not a reasonable medium term price. I still say this could go all the way (ie the skys the limit )as we do not know how successful these wil be until the new handsets are out there in number.I still see 300p possible with 200p by say this time next year.
I think i should stay in Hong Kong as since i came here ( beginning of week) ASOS and SPS have made good progress. apoligies if my return causes a slump.
Appreciate all the posts which certainly helps when the prophets of gloom appear with their - 3d mobile phone games ....your having a larf,stand as much chance of taking off as LED ZEPPLIN!....and we all know what happened to them.sorry for rambling time to kill waiting for plane to heathrow. Pease keep it all blue!

The following is a series of excerpts from the Evolution buy note mentioned above...suggests strongly that sticking with the stock through the final quarter of 04 into the first quarter of 05 is a solid investment strategy as we start to see mass availability of swerve enabled handsets translating into "transformational" revenue growth...DYOR on the sorts of numbers mentioned below in terms of the EBITDA opportunity for SPS at even modest assumptions but I feel this is certainly much more exciting than the current price suggests. I'm holding and although I've already got too many I might even add:-

Questions for management:
How quickly will the wireless gaming market
accelerate?
Pay & Play
Superscape has made good progress in signing distribution agreements
with Network Operators whilst early signs for the wireless gaming market
are encouraging. The interim results highlighted that the group is tapping
into opportunities for mass-market revenue streams and is well positioned
to become a significant player in an exciting growth market.
Mobile Gaming Outlook is Positive
The last quarter of 2004 could be a key turning point for the group, as new
BREW devices have recently come to market and where we are likely to
see mass availability when Swerve-enabled Java handsets start shipping.
The latest research would suggest that consumers are downloading and
paying for gaming content offered by the operators. According to ARC,
total global wireless gaming revenues in 2003 were approximately $1.1bn
and are expected to grow to $8.4bn by 2008, a 49% compound annual
growth rate.
Visibility of Revenues Improving
Superscape`s four corners strategy of working with handset
manufacturers, operators, wireless technology companies and leading
global entertainment groups has provided the group with a strong first to
market advantage with its portfolio of mobile games. The groups strategy
going forward is to focus more on the global wireless sector where the
main sources of revenue from the future are likely to come from Swerve
content in terms of content licensing fees, up front development fees and
royalty fees.
Valuation Looks Appealing
We are currently maintaining our revenue forecast for 2004/05 of 4.6m
whilst we still look for a pre-tax loss of 5.3m. There is a strong pipeline of
opportunities and as visibility increases, the outlook for the group is
looking very positive. The shares are on an EV/Sales of 1.8x for 2006/07
which looks cheap compared to companies in the same space. At our price
target of 60p the shares would be on an EV/Sales of only 2.3x for the year
to January 2007 and a 25% discount to our fair value DCF of 80p.
Assad Malic +44 (0) 20 7071 4407 assad.malic@evosecurities.com
Year end Sales EBITDA EBIT Pre-Tax Tax EPS DPS PER EV / Sales EV / EBITDA % Change
m m m m % p-4.1 p X X X Sales EPS
01/04A 1.1 -7.0 -7.3 -7.0 - -7.1 - - 46.0 - 29 nm
01/05E 4.6 -5.4 -5.6 -5.3 - -4.1 - - 11.0 - 313 nm
01/06E 13.5 -0.6 -0.8 -0.7 - -0.4 - - 3.7 - 196 nm
01/07E 29.7 7.8 7.6 7.6 - 6.3 - 7.6 1.8 6.5 120 nm
2
Superscape has always been at the
forefront with highly regarded 3D
graphics technology
Swerve is a powerful and scaleable
solution for the rapid creation of
console quality 3D games on
wireless devices
3
18 October 2004
Recent Trading history
Interim Results
The interim results on October 15th highlighted the significant progress that has
made to establish Superscape as a leading entertainment company. Turnover for
the six months to 31st July increased more than tenfold to 1.1m with the revenue
mix in the period continuing to shift towards a predominantly content-based
business model. The majority of the revenue for this period was derived from
content-related agreements, rather than Swerve Client or the authoring tools and
the sales order backlog increased by more than 20% from January 31st 2004 to
1.0m.
The group has continued to maintain a tight control over costs and total
operating expenses for the period were reduced by 8% with an overall loss
before tax for the period amounting to 3.1m, compared to 4.1m in the prior
year.
Table 2: Interim Results Summary
Six months ended 31 July 2004 31 July 2003
000 000
Group Turnover 1,107 94
Gross Profit 686 94
Gross Margin % 61.9% 100%
Total Operating Expenses -4,008 -4,343
Total Operating Loss -3,322 -4,249
Interest 188 123
Loss Before Tax -3,134 -4,126
Tax 72 87
Retained Loss -3,062 4,213
Source: Superscape Group
3DWG acquisition
On 1st October the group announced the acquisition of 3D Wireless Games Inc. a
Chicago based company with whom the group has worked with over a year. The
group has developed a reputation for building innovative games and Superscape
will acquire the companys development team which is based in Moscow. The
acquisition was a strategic move and this offshore model for games
development in what is seen as a low-cost environment, should bring in valuable
resources whilst retaining strict control of costs.
The interim results showed a big
improvement in revenue
The group have recently acquired
a mobile games developer
4
18 October 2004
Technology & Products
Swerve Client
The Swerve Client was developed in collaboration with ARM and is a fast and
efficient JSR 184 compliant software solution that, when embedded within the
wireless device and driven by application code, generates and manages the
interactive 3D scenes on the screen using the model description data. The Swerve
Client abstracts the more complex requirements for building interactive 3D
games, making it both easy and fast for designers and programmers to create
content without the need for detailed knowledge of such techniques as 3D
rendering. It also provides a low level immediate mode API for use by expert
graphics programmers. The client was designed from the ground up to be a
wireless solution and contains several techniques for scaling and optimising
mobile games content for delivery over todays wireless networks. It should be
clarified that Swerve is not built into the ARM chips itself but is stored with the
operating system code or Java code on FLASH EPROM, which is a semipermanent
storage area for system software. When Swerve runs, it can be copied
into main RAM since this operates faster than FLASH memory.
Swerve Studio
Swerve Studio is Superscapes powerful and easy to use development
environment to create high quality interactive 3D graphics for wireless
applications. Built around the industry standard design tool 3ds maxTM ,
Swerve Studio is a solution in developing compelling yet compact 3D
graphics for any type of wireless application. Swerve Studio relies on 3ds
maxTM asset building functionality for the creation of 3D models and
animations. It provides the key tools required to make this 3D content
suitable for delivery and operation on wireless devices. These tools are based
on industry standard methods and can be adopted and learnt rapidly by
developers already building games and other 3D applications.
Like all applications, Swerve applications vary in size. But the very nature of
Swerve (a truly mobile solution for 3D on wireless devices) makes it possible
to deliver console quality 3D games in a very small file size, suitable for over
the air delivery. How much RAM any piece of content takes up in memory is
in the main determined by the approach the designer takes to building the
game. Tools provided in Swerve Studio allow developers to prototype mobile
games and ascertain memory requirements at an early stage. Games can be
downloaded in one file, or in multiple sections so that delivering content
becomes the prime factor of the business model rather than the technology.
The Swerve Clients abstracts the
more complex requirements for
building interactive 3D applications
Swerve Studio is a leading solution
in developing compelling yet
compact 3D graphics
Swerve makes it possible to deliver
console quality 3D games in a very
small size
5
18 October 2004
Table 3: Key Features of Superscapes Swerve Technoloy
Compliant with Industry Standards Superscapes Serve technology is the first
commercially available implementation of the JSR
184 standard for delivering 3D rich media on mobile
devices. The extension for Qualcomms BREW
ensures that Superscape is positioned to be the
solution of choice for BREW enabled handsets.
Over the air delivery The small file sizes of Swerve-developed applications
enable the distribution over the air (OTA) of games
to consumers. Typically Swerve games are less than
250 kbytes in total size.
Mass-market solution Swerve applications run on all ARM9 and Intel Xscale
processors as well as M-Core and others, which are
being deployed in millions of handsets throughout
the world.
Low cost development environment Those organisations licensing Superscapes
authoring tools, Swerve Studio, will be able to
develop games quickly given the products basis on
the industry standard 3ds max toolset.
Source: Superscape Group
International Standards
From a technical perspective, the mobile game markets are very
heterogeneous. There are multiple game platforms, technologies and games
consoles existing and competing for market dominance and we have
highlighted some of the different technologies/ operating systems and
mobile consoles in the table below.
Over time the Java 2 Platform, Micro Edition (J2ME) has emerged as one of
the most widely supported mobile gaming platforms and has been accepted by
developers, device manufacturers, network operators. One of the platforms
biggest strength is that J2ME is designed for mobility and that J2ME applications
run on various devices from numerous vendors. J2ME however is not the only
language deployed on phones, but is a standard backed by many manufacturers
and therefore offers a large and growing installed based. However, another
language that has gained significant regional presence is Qualcomms Binary
Runtime Environment for Wireless (BREW) in North America.
The Java Standard
JSR-184 is a Java standard intended to provide an API to produce interactive
3D graphics for use on mobile devices. It is designed to be scalable and to
have a small footprint- to not use too much memory or processing resources.
The standard is targeted at mobile devices such as mobile handsets, which
typically do not have much memory or processing power, and no hardware
support for 3D graphics or floating point math. The target platform is the
J2ME Java environment. The JSR-184 API is designed to be an optional
package that is used in conjunction with J2ME.
The ratification in November 2003 by the Java Community Process (JCP) of JSR
184 now known as the Mobile 3D Graphics API represented a major milestone
in the development of Superscape and its technology. Having been a founder
member of the initial Expert Group for the definition of this new standard,
working closely with Nokia, Vodafone, Siemens, ARM, Sony Ericsson and
Motorola, Superscape was ideally placed to develop standard-compliant solutions
in terms of its 3D engine, authoring tools and associated content. In fact,
Superscapes Swerve is the first commercially available implementation of the
Java standard, having successfully passed all 250,000 of the requisite tests, on a
new mobile phone, to ensure full compliance. The importance of Global
standards in this sector cannot be underestimated and it is expected that JSR 184
will be a mandatory requirement for Vodafone, Motorola, Siemens, Nokia and
Sony Ericsson. Undoubtedly, Superscapes adherence to the standard has
resulted in a number of major contract wins over the course of the year.
The BREW Standard
Superscape recently announced the development of the Swerve extension for
QUALCOMMSs Binary Runtime Environment for WirelessTM (BREW) platform
which is the dominant solution throughout North America and the Far East (via
such carriers as Verizon and KDDI). The Swerve extension for the BREW platform
will provide BREW developers with the ability to quickly and easily create
interactive 3D applications to integrate with other BREW based servies. BREW is
recognised as the only true turnkey, end-to-end business and technology solution
for the wireless delivery and monetisation of data applications to subscribers. It is
ideal for bringing in new and sustainable data revenue for all components in the
mobile marketplace value chain.
Over time the Java 2 Platform,
Micro Edition (J2ME) has emerged
as one of the most widely
supported mobile gaming
platforms
JSR-184 is a new Java standard
Superscapes Swerve is the first
commercially available
implementation of the Java
standard
And BREW
7
18 October 2004
Swerve Content
Superscapes focus on securing the rights from leading IP holders to develop
2D games (as well as 3D versions) has been encouraging and during the first
half of the year the group continued to win the rights to a number of high
profile brands. These included a worldwide agreement with 20th Century Fox
Licensing and Merchandising to develop a new 3D game based on Fight
Club, a successful movie released in 1999 and an agreement to develop a 3D
wireless game based on the film Independence Day. The group have also
signed a worldwide licensing agreement with Universal Studios Consumer
Products Group to develop a new 3D game based on the Van Helsing film
license as well as a co-publishing agreement with Vir2L Studios, to create and
market a 3D bowling game for mobile phones based on the renowned AMF
bowling brand.
Superscape is also working closely with the Walt Disney Internet Group and
Tron 2.0 3D is just one of a number of new titles the group is being
contracted to develop utilising Walt Disney brands. Future contracts also
include an agreement with Californian-based Global Wireless Entertainment,
to develop a new portfolio of mobile games based on some of the worlds
best-known sporting brands. The group is therefore in the stage of
developing a number of 2D and 3D games designed for both Java and BREW
handsets and the games portfolio is shown in the table below:
Table 5: Superscape Games Portfolio
Title Comment
Van Helsing Based on film license of same name
AMF Bowling Bowling game from the number one name in the sport
Evel Knievel Extreme sports/stunt game
Street Hoops Based on Activision console game
Independence Day Based on film license of same name
Ivan Ironman Stewart Off-road Baja style mobile race game
Kingdom Hearts Based on the adventure from Disney
Alien versus Predator Linked to forthcoming film
Swerve Basketball 2-on-2 basketball game
Boat Wars Speedboat racing and shooting game
Tron Based on well-known console game from Disney
Fight Club Based on film license of same name
Snowboarding Sports game
Stop Thief Fast paced action game
Source: Superscape Group
The pipeline for Swerve Content
looks strong
Working closely with Disney
8
18 October 2004
The Wireless Gaming Market
The Wireless entertainment market has emerged as a result of the rapid growth
and significant technological advancement in the wireless communications
industry. Network operators, given their increasing debt burden and intensifying
competition are launching new data services, including downloadable games, ring
tones and images, to drive revenues and take advantage of advanced wireless
networks and next-generation mobile phones. As has been illustrated by the
success of SMS and ringtones, the 16-24 year-old market is a sweet-spot for
operators and there is now considerable momentum in the industry behind new
forms of mobile entertainment.
We are invariably sceptical of long-term technology market forecasts, especially
for emerging fields. Nevertheless, the scale of the predictions gives an indication
of perception of the opportunity. According to IDC, the number of global wireless
subscribers grew from approximately 749m in 2000 to 1.3bn in 2003 and is
expected to grow to 2.0bn by 2008 and the rollout of advanced networks have
enabled the provisioning and billing of data applications, thus increasing the
ability of wireless subscribers to quickly download large amounts of data,
including games, to their mobile phones.
Fig. 1: Java & Brew Penetration Estimates
Source: IDC
The key drivers of the market are summarised in the table below, but the two
most important factors in our view however are essentially the number of
handheld devices equipped with Java/Brew clients and the level of demand for
Wireless Games.
Network operators are rolling out
additional services, including
mobile games
However growth is dependent on
the number of Brew/Java enabled
devices
9
Annual mobile phone sales grew from 385.2m units in 2001 to 465.0m units in
2003 and are expected to grow to 689.1m units by 2008. According to ARC, the
sales of Brew enabled handsets are expected to grow from 11.6m units in 2003 to
75.6m units in 2008 whilst sales of Java enabled devices are expected to grow
from 95.5m units in 2003 to 594.9 million units in 2008. Therefore we would
expect the penetration of Brew and Java enabled mobile devices to grow from
23% in 2003 to 97% in 2008.
In terms of demand, network operators are working hard and increasingly
launching and promoting wireless entertainment applications in order to
differentiate their services and drive revenues. The latest research would suggest
that consumers are downloading and paying for gaming content offered by the
operators. According to ARC, total global wireless gaming revenues in 2003 were
approximately $1.1bn and are expected to grow to $8.4bn by 2008, a 49%
compound annual growth rate.
Traditionally, the leading computer game markets have been the USA and Japan
and thus the most significant game industry innovations commonly emerge from
these markets as opposed to Europe. However, in the wireless content business,
the mobile games business has developed rapidly in Europe due to the strong
support from the device manufacturers and the high penetration rate of mobile
telephony. The key mobile game geographical markets in Europe (from the
revenue generating perspective) are Germany, France, the UK and Italy. The key
development centres for the solutions and business areas are in the UK, Germany,
Sweden and Finland. The advantage of this is that there is clear indication that
mobile telecommunication companies such as Nokia, SonyEricsson, Siemens,
mmO2, Orange and Vodafone benefit from having at their close several
innovative companies to provide these corporations with ideas and games to
promote their own entertainment focused offerings. The importance of
Superscapes role in this growing sector is apparent and will be touched on
throughout this note.
We expect penetration of Brew
and Java enabled mobile devices
to grow from 23% in 2003 to 97%
in 2008
Latest research would suggest that
consumers are downloading and
paying for gaming content
The mobile games business has
developed rapidly in Europe due
to the strong support from the
device manufacturers
10
18 October 2004
The Wireless Gaming Value Chain
Emerging mobile game markets are closely related to both the mobile
telecommunications content business and the computer game publishing
business. There are however, four main operational phases: Content creation,
Content aggregation, Content marketing and Content distribution. In the
traditional game publishing business, game distributors carry out marketing
activities and sales take place mainly in retail outlets. In the mobile games
business, telecom operators and online/mobile portals generate most of the
sales and implement to a greater extent the marketing activities. In some
cases (e.g. N-Gage cartridges), mobile games are also sold in retail stores.
The key revenue source is of course the consumer and the wireless gaming
value chain is represented in Fig 2.
Fig. 2: Wireless Gaming Value Chain
Source: ACTeN
A key point is that mobile games have a short business cycle with a typical
game title likely to be valid for the market and sell well for approximately 6-
12 months. This is dependant on its geographic distribution range but the
mass markets for mobile games titles are very global. Whilst the USA has also
led in the traditional computer game markets, in the wireless gaming content
business, European companies are building their position as they start to
benefit from the strong support from the device manufacturers.
Consumers can either pay a flat fee for the product or they can subscribe to a
monthly payment system but the key issue here, especially in Superscapes
prospective is how the revenue is distributed from the consumer along the chain.
This is shown in the table below and discussed further when we move on to
examine Superscapes revenue model in much more detail. Typically, mobile
operators take 40-50%, with publishers taking between 50-60%. Out of the
publishers share revenue is paid away to licensors and/or external developers, (if
present).
Marketing activities are
predominantly carried out by the
Telecom Operator
Marketing activities are
predominantly carried out by the
Telecom Operator
Typically publishers receive about
50%-60% of the revenue with the
remainder going to the Network
Operator
11
18 October 2004
Table 7: Key Components of Mobile Gaming Business Model
Revenue Costs
Game distribution and marketing business (40 50% total revenues)
Direct sales to consumers (flat fee)
Subscription-based fees (e.g. monthly)
Additional feature sales (e.g. extra levels)
Game rentals (pay-per-play)
Advertising & Sponsoring
Network access and transfer fees (for telco operators)
Personell costs
Marketing campaigns (planning + media)
Infrastructure building and operation costs
(distribution platforms, servers, mobile network
operation)
License fee to publishers
Publishers (50-60% of total revenues)
Wholelsale game revenues (flat fees/per sales/per
usage)
Subscription fees from consumers (e.g. to online
coummunities)
Advertising & Sponosring e.g. (to include branded
content in the game)
Personnel costs
License fees brand owners
License fees to console manufatcurers
Payments to developers+
Mobile game developers
Flat fee payments from publishers
Commissions per mobile game usage/sales
Personnel costs
Game development software licenses and costs
Game development hadware costs
Mobile game console manufacturers
Mobile console sales
(Subscription fees to online communities)
Personnel
R&D costs
Marketing costs
Distribution costs
Source: EVO Securities
12
18 October 2004
Superscape: The Wireless Opportunity
Overview
Superscapes strategy has been based on a four corners approach across the
wireless industry and will assist Superscape in taking full advantage of the mass
market opportunity for 3D games on mobile devices. Over the last year or so, the
group has made strong progress in establishing the Companys Swerve
technology (on the back of JSR 184) as the solution of choice for developing and
delivering 3D entertainment to the global wireless industry. The four key sectors
and their importance to Superscape are shown in Table 8.
Table 8: Superscapes Four Corner Strategy
OEMs/Handset Manufacturers These require a 3D engine embedded on their devices
(Java only) to enable the delivery of innovative 3D
entertainment.
Entertainment IP Holders/Content
publishers
Need mobile 3D mobile content and relevant authoring
tools to deliver compelling games and to extend the
reach of their brand.
Technology Organisations Will benefit from an industry-standard 3D engine (or
elments of it) to incorporate into their own products.
Network Operators Will benefit from rich 3D content in response to growing
customer demand for innovative entertainment.
Source: Superscape Group
The group has won significant contracts for games and technology with leading
handset manufacturers and over the year signed licensing agreements for Swerve
Clients with Samsung, Siemens and Motorola. The group have also signed with
various IP holders and content providers such as Disney, Sony Digital Pictures
Mobile etc as well as Technology organisations. However, the key for
Superscapes strategy has been to sign with the Network Operators thus opening
up a distribution platform for its games. Superscape has progressed well in this
field and has met its initial target of signing with 10 operators. In fact, the group
has been so successful in this field, that it has recently increased its target to 15
operators and recently announced the signing of its 11th distribution agreement
with an Operator. The top 10 key target operators for Superscape are shown
below, along with their respective subscriber bases:
Superscape has made strong
progress in establishing Swerve
technology as the solution of
choice
and has made excellent
progress in signing with the
Network Operators
13
18 October 2004
Table 9: Superscapes Key Target Operators
Operator Mobile Subscribers
AT&T 21.7m
China Mobile 138.0m
O2 21.3m
Orange 50.9m
Cingular Wireless 25.0m
Sprint 22.2m
Telefonica 54.4m
T-Mobile 71.6m
Verizon Wireless 40.0m
Vodafone 139.2m
Source: Superscape Group, EVO Securities
Verizon is arguably the leader in the downloadable applications arena and
where the most information in this sector is currently available. Through its
Get It Now service, Verizon has recently announced that the volume of
downloads has skyrocketed to 34 million in the first five months of 2004. This
reflects the popularity of getGAMES,. which is the virtual shopping aisle that
offers puzzle and strategy games, action and sports games, classics based on
popular board games and games based on favourite television shows and top
movie titles. Currently getGAMES offers 35 multiplayer games. From January
to May 2004, the group also announced that Verizon Wireless customers
downloaded more than 12 million game applications for a total of more that
30 million downloads since the launch of the service nearly two years ago. It is
however hard to get a handle on the actual amount of business being down
by the providers as few of the operators break out the mobile gaming
numbers. This is normally down to the fact that even when its profitable, its
usually not a high enough number compared with overall revenues to be
considered material for public companies.
Sprint reported that in the first four months of 2004, the carrier sold more
than 3.5m games at prices ranging from $5 to $6. Most carriers use a similar
pricing model and most also have the option of purchasing the game on a
one-off or subscription basis. O2 in the UK is another carrier that is believed
to be performing relatively well. The figure below illustrates this point
highlighting that its attach rate (the proportion of enabled services that are
actively using the service) is running at about 25%, a figure that Strategy
Analytics believe is well above the European Average of 18%.
Verizon is arguably the leader in
the downloadable applications
arena
Whilst O2 in the UK is another
carrier that is believed to be
performing relatively well
14
18 October 2004
Fig. 3: O2 UK Game Volume and Frequency of Use Estimates
Source: Strategy Analytics
An interesting movement and one which Superscape has managed to
overcome are the barriers in distributing content which can in turn create
barriers for marketing. Third party content not approved by carriers can be
frozen out and most of the control for distribution is in the hands of the
carriers and therefore limits some content providers from selling directly from
Internet sites. Additionally content created or sold by third parties whom do
not have a partnership with a carrier, may make it onto phones which operate
through an open network (eg spirits network). However it may not gain access
onto more gated carriers such as Verizon Wireless, and this is where
Superscapes growing relationships with the carriers is key. By building up
distribution contracts, Superscape is ensuring that its content is marketed and
distributed effectively and is reaching the correct audience.
However the development, distribution and sale of mobile gaming content is
a competitive business, especially in the 2D arena and competition is on the
basis of quality of applications, brand, carrier and customer service and
distribution breadth. Table 10 below set outs what we believe to be the
current competition in the market to Superscape.
By building up distribution
contracts, Superscape is ensuring
that its content is marketed and
distributed effectively
The development, distribution and
sale of mobile gaming content is a
competitive business
15
18 October 2004
Table 10: Other Market Players
JamDat Mobile This is a US based company and recently listed on the NASDAQ
market. Current market capitlisation is in the region of $520m.
Jamdat is a global publisher of wireless entertainment applications,
including games, ring tones, images and other entertainment
content. Jamdat Mobile has developed a diversified portfolio of
more than 70 applications and the Company also licenses branded
applications from third parties
Gameloft Gameloft is an international developer and publisher of video games
for mobile phones. Gameloft was created in December of 1999 and
is now listed on the Paris stock excahnge. At time of writing,
Gamelof had more than 30 java games for donwload across a broad
range of handsets.
Mforma Mforma is a global publisher and distributor of wireless
entertainment content with a strong presence in the United States
and Europe and a leading provider in Asia and South America.
Mfroma provides interactive mobile entertainment content including
games and premium subscription information such as news etc. to
more than 60 of the world's wireless operators. The group recently
purchased UK based mobile entertainment publisher, Blue Beck for
an undisclosed sum.
THQ Wireless A division of video games publisher THQ, the group focuses om
mobile entertainment sector.
Digital Bridges Digital Bridges is focused on mobile entertainment providing the
distribution channels, content, brands and technology to bring
mobile entertainment to a global mass-market audience. Mobile
entertainment solutions are distributed via a global network of
operators, portals, retailers, interactive TV channels and other ecommerce
outlets. Its dbigames publishing division works with the
industry's game developers to create mobile entertainment solutions
Source: Superscape, EVO Securities
16
18 October 2004
The Business Model
The groups revenue mix has over the last 12 months or so started to shift away
from the Swerve Client and Tools and more towards Swerve Content. This change
in focus has however had positive implications for the group and we believe that
the new business model is more robust and is being centred on growth in
consumer demand for mobile gaming. Additionally, the group is developing a
high quality distribution platform through negotiations with mobile operators and
we believe that the business is very scalable due to the multiple revenue
opportunities per title.
A lot of Superscapes content applications consist of, or are based upon
intellectual properties that are licensed from 3rd parties. These can be exclusive or
non-exclusive. Where possible, both 2D and 3D rights are acquired as a bundle.
Superscape is currently addressing both the existing 2D mobile game market and
nascent 3D mobile game market. However, it is in our view that whilst we
estimate 2D revenues to be fairly significant in 2004/05, revenues from 3D games
are likely to overtake those of 2D in 2006 and onwards. As has been discussed
previously, the growth in 3D gaming revenues are based on increasing availability
of the new generation of 3D enabled handset through Q3 and Q4 04 and
Superscape will produce mobile gaming titles in both Java and BREW versions to
address both GSM and CDMA markets worldwide. In addition we still expect the
group to generate revenues from providing consulting services and contractual
development work for carriers and OEMs.
Our main assumption going forward and which forms the basis of our
forecasts is that a large proportion, if not all of Supersccapes revenue in the
future will be generated from mobile gaming related content. In particular:
Licensing (publishing) of mobile games to wireless subscribers through
agreements with mobile Operators and/ or aggregators globally (Over
the air delivery)
Licensing of games to handset OEMs for embedding on handsets.
Generally, these manufacturers pay a per unit license fee for each mobile
phone manufactured with an embedded application.
There are risks with this kind of model especially as the revenues are
ultimately dependent on the number of downloads of mobile games
produced by Superscape. However, in our view they are less pronounced
compared to the traditional video games business model. A typical mobile
game has a relatively small development time, requiring only 8-10 months
(including porting and testing) before being published compared to
18+months for a traditional console title. Furthermore, whilst the cost of
development for a traditional console title is now in the millions, the cost of
development for a typical mobile 2D game is in the region of $0.1m and for a
3D game approximately $0.15m-$0.20m. The chart below gives an overview
of the development process for a wireless game and maps the costs and
revenues associated with it.
Superscape is increasingly focusing
on mobile gaming content
We estimate that revenues from
3D games are likely to overtake
those of 2D in 2006 and onwards
There are risks however
17
18 October 2004
Fig. 4: Risks in Wireless Gaming
Source: ACTeN
An interesting position to examine is the break-even point. The table below
breaks out our assumptions in calculating the break-even point at the gross profit
level in terms of the number of downloads. We have assumed marketing costs
equivalent to c.5% .of the cost of development and an average price of $5 per 2D
game and $7.5 per 3D game. Factoring in the revenue share of say 50% and gross
margin of c60%, break even would need c70,000 downloads for both a 2D and
3D game.
Table 11: Break-Even Analysis
2D Mobile Game 3D Mobile Game
Development Cost ($) 100,000 150,000
Marketing Costs, Borne by Publisher 5,000 7,500
Total Costs 105,000 157,500
Average Game Price ($) 5.0 7.5
Revenue Share with Operator (%) 50% 50%
Gross Margin (%) 60% 60%
No. Downloads to Break Even (BE) 70,000 70,000
Average Shelf Life (Months) 8 12
Required Daily Downloads to BE 288 192
Source: Various, EVO estimates
On average break even at the
gross profit level would need
c42,000 downloads
18
18 October 2004
Swerve Content is Key
Customers download applications to their mobile phones through a carriers
branded e-commerce service, which in the case of Superscape includes Verizon
Wireless Get It NOW and Vodafones Live! Service. The customers are then
charged a fee for the applications which appear on their mobile phone bills. Over
the Air (OTA) transactions can either be a one-off purchase or a monthly
subscription. The wireless carriers retain a percentage of the fee and remit the
balance back to Superscape. By using the carrier as a distribution platform,
Superscape eliminates traditional publishing complexities, including physical
production, packaging, shipping, inventory management and return processing.
In addition, a key feature of the mobile gaming market is that, unlike the console
gaming market, publishers aim to leverage off the marketing budgets held by the
IP licensors and the Operators.
What is important to note before we move on to discuss the assumptions behind
our forecasts is that a large proportion of revenue is driven by a small number of
games on the Operators Top 10 lists and in general, 80% of the revenues are
generated by 20% of the top tiles. Secondly, the shelf life of mobile games varies
significantly from those of traditional video games. Whilst some do have longlasting
abilities, such as JamDat Bowling an average lifespan for a 2D mobile
game is typically 8 months. However, given that 3D games are likely to have more
depth to them, and, at least initially, demand is expected to significantly outstrip
supply, we would expect them to be longer lasting than 2D games. Table 12
below sets out what we believe to be the key revenue drivers for Superscape.
Table 12: Revenue Drivers
Number of distribution channels
(i.e. Operators and Aggregators)
Superscape is addressing its 10 Top Tier targeted
Operators directly and over 60 other Operators through
a leading aggregator
Number of game titles in portfolio Superscape has 16 X 2D and 23 X 3D titles completed or
under development
Number of downloads each title
generates
This varies by title and by Operator and will also be
influenced by the available handsets, quality of delivery
mechanism and level of marketing support
Revenue share from Operators This ranges from 50% to 80%
Mix of one-off purchases to monthly
subscription
Varies by Operator but industry avaerage suggests
upwards of 30% Revenue from subscription model
Price point per game download Varies by region but 2D games average $5 in USA for
one-off purchases, although the price can be higher in
Europe, e.g. 5 including VAT in the UK, no track record
for 3D yet
Source: Superscape, EVO Securities
A key feature of the mobile
gaming market is that publishers
can leverage off the marketing
budgets held by the IP licensors
and the Operators
The shelf life of mobile games
varies significantly from those of
traditional video games
19
18 October 2004
Forecasts
Having fleshed out the business and revenue model somewhat our forecasts have
been built up using some of the assumptions highlighted above. It should be
noted that the business model remains at a nascent stage and in some cases we
have found that there are currently insufficient data points to offer a detailed
indication, particularly in terms of the level of downloads. The flow chart below
maps out our approach to forecasting the groups revenues.
Fig. 5: Revenue Flow Chart
Source: EVO Securities
Our assumptions from here on forward for our forecasts are set out in Table 13.
Table 13: Revenue Assumptions
2D Games 3D Games
Number of distribution channels 10 10
Number of game titles in portfolio 16 23
Revenue share from Operators 50% 50%
Price point per game download ($) 5.0 7.5
Source: Superscape, EVO Securities
In terms of 2D games, we have assumed an average price point of $5 and a
royalty share of 50%. This is in our view conservative and we may see the royalty
share with the Network Operators to reach 65%. Two further assumptions remain,
that is the number of operators and the average download rate. In terms of the
number of operators, Superscape have been targeting 15 Operators by the end
of the year and our current forecasts however only assume the signing up of 10
operators by the end of the year. Additionally looking ahead to 2005/06, we have
still only assumed 10 Operators. These are however given the list the groups key
global operators and we would expect the bulk of the Superscapes content
revenue over the next 3 years to come from this group. The other key
components are the number of downloads. There is little documentation on the
number of downloads from mobile operators, however we have collated some
examples to add weight to our assumption.
There is little documentation on
the number of downloads from
mobile operators
20
18 October 2004
Table 14: Mobile Game Download Samples
Game Publisher/Developer Period Cum
Downloads
Average
Price
Avergae Daily
Rate
Alpha Wing Macrospace 12 Months 1,200,000 5.0 3,226
TibiaME ClipSoft GmbH 10 Months 30,000 5.0 97
Anno 1503* Elkware GmbH 1 Month 100,000+ 3 - 5 3,226
Top Gun Mforma 12 Months 340,694 $5 - $6 915
Puzzle
Bobble
Taito Corp. 15 Months 376,000 5.0 809
Fernando
Alonso
Racing
Galeco Moviles 1 Month 100,000 3 3,226
Source: Various, Telefonica, EVO Securities
Our own industry view would suggest that the average download rate for a
wireless game is within the range of 100-400 downloads a day. A strong title
would be expected to get anywhere near 800-1000 downloads a day. Though it is
equally possible for a poor game to get anything if only a handful of downloads a
day. Our assumptions have therefore assumed a maximum of 300 downloads a
day. This factors in that whilst we may get some outperforming titles, it also
accounts for any under performing titles. Our revenue assumptions for 2D are
therefore provided in Table 15.
In terms of the 3D games, we expect very little contribution in the current year
and expect the majority of revenue in 2005/06 as Java and BREW enabled devices
mature and become more mass market. The model is similar to the 2D one
except we would expect a 3D game to retail for a higher price point compared to
the 2D one. As such for the 3D games we have assumed an average revenue of
$7.5 which reflects the mix between paying a one-off charge and a subscription
based one. The 3D revenues do look quite conservative, but currently there is
little visibility on the market dynamics.
Our own industry view would
suggest that the average
download rate for a wireless game
is within the range of 100-400
downloads a day
We would expect a 3D game to
retail for a higher price point
compared to a 2D game
21
18 October 2004
Table 15: 2D Wireless Mobile Revenue Model
2004/05 Av. Revenue Royalty Share Av. No. Games Av. Daily No. Downloads Revenue Superscape Share
Carrier Per Game ($) % Downloads/ Game ($000) ($000)
A 5.0 50% 2.75 250 250,938 1255 627
B 5.0 50% 2.00 250 182,500 913 456
C 5.0 50% 2.00 200 146,000 730 365
D 5.0 50% 1.25 200 91,250 456 228
E 5.0 50% 0.75 200 54,750 274 137
F 5.0 50% 0.50 200 36,500 183 91
G 5.0 50% 0.25 100 9,125 46 23
H 5.0 50% 0.25 100 9,125 46 23
I 5.0 50% 0.25 100 9,125 46 23
J 5.0 50% 0.25 100 9,125 46 23
Total $ 1,996
Total 1,109
2005/06 Av. Revenue Royalty Share Av. No. Games Av. Daily No. Downloads Revenue Superscape Share
Carrier Per Game ($) % Downloads/ Game ($000) ($000)
A 5.0 50% 12.50 300 1,368,750 6844 3,422
B 5.0 50% 9.50 300 1,040,250 5201 2,601
C 5.0 50% 8.00 300 876,000 4380 2,190
D 5.0 50% 8.00 200 584,000 2920 1,460
E 5.0 50% 8.00 200 584,000 2920 1,460
F 5.0 50% 8.00 200 584,000 2920 1,460
G 5.0 50% 5.50 100 200,750 1004 502
H 5.0 50% 4.25 100 155,125 776 388
I 5.0 50% 4.25 100 155,125 776 388
J 5.0 50% 4.25 100 155,125 776 388
Total $ 14,258
Total 7,921
Table 16: 3D Wireless Mobile Revenue Model
2004/05 Av. Revenue Royalty Share Av. No. Games Av. Daily No. Downloads Revenue Superscape Share
Carrier Per Game ($) % Downloads/ Game ($000) ($000)
A 7.5 50% 1.75 200 127,750 958 479
B 7.5 50% 1.00 200 73,000 548 274
C 7.5 50% 1.00 200 73,000 548 274
D 7.5 50% 0.75 200 54,750 411 205
E 7.5 50% 0.25 150 13,688 103 51
F 7.5 50% 0.25 150 13,688 103 51
G 7.5 50% 0.25 150 13,688 103 51
H 7.5 50% 0.25 150 13,688 103 51
I 7.5 50% 0.00 0 0 0 0
J 7.5 50% 0.00 0 0 0 0
Total $ 1,437
Total 798
22
18 October 2004
2005/06 Av. Revenue Royalty Share Av. No. Games Av. Daily No. Downloads Revenue Superscape Share
Carrier Per Game ($) % Downloads/ Game ($000) ($000)
A 7.5 50% 6.00 200 438000 3285 1643
B 7.5 50% 4.75 200 346750 2601 1300
C 7.5 50% 4.75 200 346750 2601 1300
D 7.5 50% 3.50 150 191625 1437 719
E 7.5 50% 3.50 100 127750 958 479
F 7.5 50% 2.50 100 91250 684 342
G 7.5 50% 2.50 100 91250 684 342
H 7.5 50% 2.50 50 45625 342 171
I 7.5 50% 2.50 50 45625 342 171
J 7.5 50% 2.50 50 45625 342 171
Total $ 6638
Total 3688
Whilst we expect the majority of Revenue to come from Content over the next
two years, other sources of revenue will come from the Swerve Client (embedding
the client on handsets) and the licensing of the Swerve Studio. An overview of our
revenue forecast is shown in the table below:
Table 17: Revenue Summary
Revenue Summary 2004/05 2005/06
Swerve Client 406 420
Swerve Studio 162 80
Swerve Content 2,773 11,949
Other/Reserves 1,220 1,068
Group Revenues 4,561 13,517
Source: EVO Securities
As the nature of the Groups business has changed with the increasing focus
on the global wireless sector, the Groups revenue stream is moving more
towards license and royalty based revenues and away from project based
revenues. As a consequence, for 2004/05, we expect gross margins in the
region of 62.2% and 61.0% in 2005/06. The gross margin is basically a
function of the Revenue share retained after payment to IP holders.
Operating expenses are composed of R&D, sales and marketing and Admin
expenses, the break down of our forecasts is shown in Fig. 6.
For 2004/05, we expect gross
margins in the region of 62.2% and
61.0% in 2005/06
23
18 October 2004
Fig. 6: Operating costs by component
Source: EVO Securities
The group employs 62 persons with 21 in the R&D division, 15 in the
technology team and 14 in sales and marketing and 12 in management and
administration. The group has tax losses in the region of 30m, and we
anticipate that the group is unlikely to pay tax in the forecast period. Overall
for 2004/05, we expect the group to post a pre-tax loss of 5.3m reducing to
a loss of 0.7m in 2005/06. We do however expect the group to break even
in the second half of the year. With the relatively high fixed cost component,
the operating leverage of the group is an attraction and downloads only need
to increase by small amount for the group to move in to profit. It is however
the year to 2006/07 where the operational gearing and the scale of the
business comes into play and we look for revenues of 30m and pre-tax
profits of 7.6m.
Overall for 2004/05, we expect the
group to post a pre-tax loss of
5.3m reducing to a loss of 0.7m
in 2005/06
24
18 October 2004
Valuation
Valuation is tricky given that there are very few directly comparable quoted peers.
However, Gameloft is a quoted peer as is Jamdat and both are active in the
wireless content market with a particular focus on games. Since Jamdat has only
recently floated, there are little or no earnings estimates available and the peer
group comparison in Table 18 highlights the available information.
Table 18: Peer Group Valuation
Company Market EV/Sales (x) PE (x)
Cap (m) 2004 2005 2006 2004 2005 2006
Gameloft 138 6.9 4.2 2.5 73.3 20.0 11.6
Jamdat $520 14.7 na na na na na
Superscape 59.4 11.7 3.9 1.8 - - 7.6
Source: Various, Global Estimates, EVO Securities
The key focus should be on the 2006 ratios as this is when Superscape should
be well into its business strategy and generating healthy profits from mobile
games. As such, an EV/Sales of only 1.8x and PE of only 7.6x does not look
demanding. This is more prominent when one considers that neither
Gameloft nor Jamdat have any real 3D capability or technology that we are
aware of, whilst Jamdat also lacks the handset manufacturer relationships that
Superscape has built up. Lastly, 75% of Jamdats revenue comes from only
two US operators whilst Superscape is building a credible global distribution
platform for its games.
What about an absolute measure such as a Discounted Cash flow method?
Our calculations are set out in the table below and we have tried to use
relatively conservative assumptions. Cash flow forecasts were used up to
2007e after which a 20% compound growth rate was assumed with a
perpetual growth rate of 2.0% beyond 2013. Other key assumptions were a
WACC of 14.0%. This gives a fair value based on current free cash flow
forecasts for the group of 80p and is a 69% premium to the current price.
There are very few quoted peers
Neither Gameloft or Jamdat have
any real 3D capability or
technology
DCF gives a fair value of 80p
25
18 October 2004
Table 19: Discounted Cash Flow Valuation
Cash flow growth rate 2.0%
Discount rate (WACC) 14.0%
Year to January (m) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Terminal
Free Cashflow (6.2) (1.0) 7.2 8.7 10.5 12.6 15.3 18.4 22.2 188.5
Discount factor 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.308
Discounted cash flow (5.4) (0.8) 4.9 5.1 5.4 5.8 6.1 6.4 6.8 58.0
Cumulative DCF (5.4) (6.2) (1.4) 3.8 9.2 15.0 21.1 27.5 34.2 92.3
Enterprise DCF 92.3
Net cash (debt) 6.0
Estimated equity value (m) 98.3
Shares issued (m) 123.6
Estimated equity value (p) 80
We have also included an analysis looking at sensitivity to different levels of
WACC and Terminal growth rates, see Table 20.
Table 20: DCF Sensitivity Analysis
(p)
WACC
(%)
Cash flow growth rate
(%) 12.0 13.0 14.0 15.0 16.0
0.0 90 80 72 65 59
0.5 93 82 74 66 60
1.0 96 85 76 68 61
1.5 99 87 77 69 62
2.0 102 90 80 71 64
2.5 106 93 82 73 65
3.0 110 96 84 75 67
3.5 115 100 87 77 68
4.0 120 103 90 79 70
The group is however still loss making and this needs to be reflected in the
valuation as does the visibility on future revenues. As such and given the company
is still in the early stages of building royalty revenue from the Network Operators,
we have taken a 25% discount to our DCF model to give a target price of 60p.
This would put the shares on an EV/Sales of only 2.3x for 2006 and a PE of 9.5x.
Superscape has come a long way since its focus on Mobile gaming in 2002 and
the outlook for Java and Brew enabled handsets has improved as has the groups
partnerships with handset vendors, network operators, distributors and content
companies. Additionally, European operators now have firm revenue sharing
models in place whilst billing issues have also in the main been resolved. There
are still risks, and the competitive environment remains highly fragmented but
Superscape is making good traction and has a strong balance sheet from which to
validate its business model.
Maintaining Buy recommendation
26
18 October 2004
Profit & Loss
Year to January 2002/03A 2003/04A 2004/05E 2005/06E 2006/07E
'000s
Turnover
Continuing 855 1,105 4,561 13,517 29,692
Growth % Na 29.2% 313% 196% 120%
Discontinued 585 0 0 0 0
Group Turnover 1,440 1,105 4,561 13,517 26,692
Growth % na -23.3% 313% 196% 120%
Cost of Sales -1,009 -252 -1,724 -5,272 -12,471
Gross Profit 431 853 2,837 8,245 17,221
Growth % na 97.9% 233% 191% 109%
Gross Margin % 29.9% 77.2% 62.2% 61.0% 58.0%
Operating Expenses
Research & Development -3,015 -3,064 -3,575 -3,754 -3,829
Growth % na 1.6% 17% 5.0% 2.0%
% Sales 209.4% 277.3% 78.4% 27.8% 12.9%
Sales & Marketing -3,527 -2,454 -2,450 -2,769 -3,101
Growth % na -30.4% -0.2% 13.0% 12.0%
% Sales 245% 222% 54% 20% 10%
Administrative -3,112 -2,552 -2,422 -2,507 -2,683
Growth % na -18.0% -5.1% 3.5% 7.0%
% Sales 216% 231% 53% 19% 9%
Total Expenses -9,654 -8,070 -8,447 -9,029 -9,612
Growth % na -16% 4.7% 6.9% 6.5%
% Sales 670% 730% 185% 67% 32%
Operating Profit
Continuing -9,223 -7,217 -5,610 -784 7,609
Discontining 0 0 0 0 0
Group Operating Profit -9,223 -7,217 -5,610 -784 7,609
Growth % na -22% -22.3% -86.0% nm%
Share of Joint Venture -58 0 0 0 0
Total Operating Profit -9,281 -7,217 -5,610 -784 7,609
Growth % na -22% -22.3% -86.0% nm%
Operating Margin % -644.5% -653.1% -123.0% -5.8% 25.6%
Pre-Tax Profit
Interest Receivable 293 248 280 80 15
PBT -8,988 -6,969 -5,330 -704 7,624
Growth % na -22% -23.5% -86.6% nm%
Tax 516 229 200 200 200
Tax Rate % -5.7% -3.3% -3.8% -28.4% 2.6%
Profit After Tax -8,472 -6,740 -5,130 -504 7,824
Growth % na -20% -23.9% -90.2% nm%
Per Share Data
EPS (p) -16.7 -7.1 -4.1 -0.4 6.3
Growth % na -58% -41.4% -90.2% nm%
Dividend (p) 0.0 0.0 0.0 0.0 0.0
Growth % na na na na na
No. Shares (m) 50.7 95.2 123.6 123.6 123.6
27
18 October 2004
Cash Flow
Year to January 2002/03A 2003/04A 2004/05E 2005/06E 2006/07E
'000s
Group Operating Loss -9,281 -7,217 -5,610 -784 7,609
Amortisation 216 35 60 35 35
Depreciation 247 148 150 150 150
EBITDA -8,818 -7,034 -5,400 -599 7,794
Loss on sale of FTA 0 24 0 0 0
(+)/- Debtors 172 -222 -900 -500 -500
+/(-) Creditors 25 215 100 200 200
Exchange Gain/Other 0 -5 0 0 0
Net Cash From Operations -8,621 -7,022 -6,200 -899 7,494
Net Interest 293 186 200 160 15
Tax Paid 155 514 200 200 200
EVBG Cash Flow -8,173 -6,322 -5,800 -539 7,709
Capital Expenditure -165 -137 -400 -500 -500
Free Cash Flow -8,338 -6,459 -6,200 -1,039 7,209
Dividends Paid 0 0 0 0 0
Disposals/Acquisitions -96 0 0 0 0
Other 0 0 0 0 0
In/Outflow Before Financing -8,434 -6,459 -6,200 -1,039 7,209
Financing 8,095 8,229 0 -500 0
Increase/(Decrease) in Cash -339 1,770 -6,200 -1,539 7,209
Movement in net funds -1,950 2,883 -6,200 -1,539 7,209
Opening Net Cash 11,293 9,343 12,226 6,026 4,487
Closing Net Cash 9,343 12,226 6,026 4,487 11,696
EVBG CFPS (p) -16.1 -6.6 -4.7 -0.4 6.2
Post Capex CFPS (p) -16.5 -6.8 -5.0 -0.8 5.8
28
18 October 2004
This document is issued by Evolution Securities Ltd (Evolution Securities) (Incorporated in England
No.2316630), which is authorised and regulated in the United Kingdom by the Financial Services Authority for
designated investment business and is a member of the London Stock Exchange. This document is for
information purposes only and should not be regarded as an offer or solicitation to buy the securities or other
instruments mentioned in it. Expressions of opinions are those of the research department of Evolution
Securities only and are subject to change without notice. No representation or warranty, either expressed or
implied, is made nor responsibility of any kind is accepted by any Evolution Group company, its directors or
employees either as to the accuracy or completeness of any information stated in this document. Evolution
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18 October 2004
18 October 2004
Company description
Superscape today is best described as a games publisher and
software solution provider for the delivery of interactive 3D games.
The technology has been developed for use in memory constrained
environments such as PDAs and handsets, and transmission over
low bandwidth networks. On of the groups key strengths is its 3D
mobile technology which has given it an industry leading edge in
the market.
Market position
Superscape`s four corners strategy of working with handset
manufacturers, operators, wireless technology companies and
leading global entertainment groups has provided the group with a
strong first to market advantage with its portfolio of mobile games.
The groups strategy going forward is to focus more on the global
wireless sector.
Year to Jan (000) 2004A 2005E 2006E
Profit and loss
Turnover 1,105 4,561 13,517
Gross Profit 853 2,837 8,245
EBITDA -7,034 -5,400 -599
Operating Profit -7,217 -5,610 -784
Net Interest 248 280 80
EVO Pre-Tax Profit -6,969 -5,330 -704
Gross Margin (%) 77.2 62.2 61.0
Operating Margin (%) Nm -123.0 -5.8
Per share data
EVO EPS (p) -7.1 -4.1 -0.4
FCFPS (p) -6.6 -4.7 -0.4
DPS (p) - - -
Cash flow
EBITDA -7,034 -5,400 -599
Working Capital 12 -800 -300
Interest 186 200 160
Taxation 514 200 200
EVO Cash Flow -6,322 -5,800 -539
Net Capex -137 -400 -500
Net Acquisitions 0 0 0
Dividends 0 0 0
Financing 8,229 0 -500
Cash In/Out 1,770 -6,200 -1,539
Closing Net Debt 12,226 6,026 4,487
Turnover
EBITDA
As at Jan (000) 2003 2004
Balance sheet
Intangible fixed assets 110 179
Tangible fixed assets 359 213
Other fixed assets 0 0
Debtors 1,105 1,052
Stock 0 0
Other assets 0 0
Creditors 957 1,102
Other liabilities 0 0
Capital employed 617 342
Net Cash 9,343 12,226
Shareholders funds 9,960 12,568
Shareholders
ARM 11.9%
Killik & Co 9.5%
Gartmore 6.1%
Company Share Price Graph

Thanks for the posting, joe hargan

You're welcome hlyeo. I notice that Vodafone are actively on air advertising their java games handsets. They are clearly gearing up for the Christmas season and the embedded games technology is a key marketing platform for them.

here is the latest and greatest just released...

HOOK, England, October 25 /PRNewswire/ -- Superscape Group plc (LSE: SPS.L - news) (LSE: SPS), announces that two of the company's new 3D mobile games will be showcased in QUALCOMM (NASDAQ: QCOM - news) 's exhibition booth at this year's CTIA Wireless I.T. event being held in San Francisco October 25-27.

The Superscape titles on show, both designed to run on BREW-enabled handsets are Evel-ution, a game based on stunts by the world-famous motorcycle rider, Evel Knievel and licensed via a partnership with Global Wireless Entertainment, Inc. and AMF Xtreme Bowling.

Superscape's technology and games leverage the robust capabilities available through QUALCOMM's BREW solution. A BREW extension of Superscape's 3D graphics engine was announced in November 2003, enabling developers to quickly and easily create interactive 3D applications.

QUALCOMM's BREW solution provides products and services that connect the mobile marketplace value chain, which includes publishers, developers, content providers, device manufacturers, operators and consumers.

Publishers and developers worldwide are generating revenue from BREW-based applications and content, and 27 manufacturers have offered more than 150 BREW-enabled device models to consumers. BREW is successfully enabling the commercial wireless data services of many successful operators, including Verizon Wireless, Alaska Communication Systems, ALLTEL (NYSE: AT - news) , Cellular One, Cellular South, Cricket Communications, MetroPCS, Midwest Wireless, NTELOS, Rural Cellular Corporation (NASDAQ: RCCC - news) and U.S. Cellular in the United States, Bermuda Digital Communications, China Unicom, KDDI in Japan, KTF in South Korea, Hutch in Thailand, Iusacell in Mexico, VIBO in Taiwan, Tata in India, Telstra in Australia, VIVO in Brazil, BellSouth Argentina, BellSouth Chile, BellSouth Colombia, BellSouth Ecuador, BellSouth Guatemala, BellSouth (NYSE: BLS - news) Nicaragua, BellSouth Panama, BellSouth Peru, Movicom in Argentina, Movicom in Uruguay, Telcel and Movilnet in Venezuela, Verizon Dominicana, Verizon Wireless Puerto Rico, Pelephone in Israel and Zapp in Romania.

About Superscape

Superscape is the leader in revolutionary entertainment for mobile phones. The company was the first in the world to develop and launch international standard (JSR 184) compliant solutions for the delivery of innovative games on mass-market handsets.

Superscape is quoted on the London Stock Exchange (LSE: LSE.L - news) and has corporate offices in Hook, Hampshire (UK) and San Clemente, California (USA). www.superscape.com

QUALCOMM and BREW are registered trademarks of QUALCOMM Incorporated. All other trademarks are the property of their respective owners.

Why the drop today???

Some profit taking in a weak market and MMs rebalancing their holdings.

Lots of traders clearly profit taking in the last couple of days but a bounce back today on the back of a lot of support. I still think 70p is very close and the underlying fundamentals look terrific.

This has hardly warmed up yet.I bet my earlier post saying this has the legs to go to 3 in the long term (18 months) doesnt feel so stupid today?

we could be off another nice little rally today....