Embracer Group - Sales and profitability exceeds expectations (ABG Sundal Collier)
2019-11-14 06:42
Sales of SEK 1,260m alongside Adj. EBIT margin 19.1%
Operational EBIT +26.9% vs. ABGSCe
Positive prel. consensus ests ~4% Adj. EBIT
Q2’19/20 resultsEmbracer delivered a strong quarter today, which beat consensus expectations, with Operational EBIT of SEK 241m, +26.9% vs. ABGSCe and +45.8% vs. consensus. Reported net sales were SEK 1260m, +14.5% vs. ABGSCe and +20.7% vs. consensus, mainly driven by a stronger than expected performance by the THQ Nordic and Deep Silver segments. We expect that the main revenue drivers of the quarter were Wreckfest on console for THQ Nordic as well as back catalogue sales. Remnant of the Ashes – developed by Gunfire Games and published by Perfect World – also contributed through royalties.
Estimate changes
We expect consensus to make positive estimate revisions to Operational EBIT for 2019/2020e of at least 4-5% on the back of the strong report. Estimate revisions from consensus will however also be dependent on previous assumptions for the release date of for example Desperados 3, Destroy All Humans and the upcoming Spongebob Squarepants remake, which now seem to have been pencilled for release in the next financial year, 2020/2021e. The same is true for assumptions regarding the release date of Biomutant, which have not been confirmed as of yet. Lars Wingefors reiterates that Embracer has a strong pipeline of 86 titles in development, 49 of which have not yet been announced.
Final thoughts
The Embracer Group stock has regained most of the loss following the critical report released by The Analyst and is currently up ~50% YTD. Based on our estimates, and at the current share price, the stock is trading at an EV/Operational EBIT of 15.4x for 2019/2020e, which is ~20% below our peer group median, which contains mid-sized developers and publishers of PC and Console videogames. There is a conference call/webcast at 09:00 CET, dial-in: SE +468 505 583 55, UK +44 333 300 9268 link: https://financialhearings.com/event/11778
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