Embracer Group
Embracer Group - All about Coffee Stain in Q4’20/21e (ABG Sundal Collier)
2021-04-20 19:30
ABGSCe: Q4 adj. EBIT SEK 600m, -7.8% vs. consensus
Estimate revisions on Valheim & Satisfactory
Raise SOTP fair value range to SEK 215-325 (195-305)
Q4e revenues SEK 2,347m, +75% y-o-y, 81% from GamesFor Q4’20/21e we expect another strong quarter from Embracer, largely driven by the Games segment. We forecast total revenues of SEK 2,347m for y-o-y growth of 75.3%. We estimate that the Games segments will generate SEK 1,894m, or 80.7% of total revenues (a new record for Embracer). We think all Games segments except Coffee Stain will be driven by back-catalogue titles, as they feature no major releases. However, Coffee Stain is set to generate revenues of SEK 706m by our estimate, or +761% y-o-y, due to the extremely successful launch of Valheim (we factor in 6.25m copies sold) but a gross profit of SEK 235m for Coffee Stain due to the economics of Valheim (developer royalties accounted for in COGS). On a group level, we forecast a gross margin of 53.7%. Ultimately, we forecast adj. EBIT of SEK 600m, +109.8% y-o-y, for a margin of 25.6%, and adj. EPS of SEK 1.36, +38.8% y-o-y.
Raise Q4 adj. EBIT by 8.7% on Valheim & Satisfactory
Following the success of Valheim, we have raised our Q4’20/21e sales estimate by 25.0% and adj. EBIT by 8.7%. Again, the economics of Valheim, where the developer Iron Gate Studios receives a majority of revenues, (we estimate 70%), impacts the gross margin of Coffee Stain. More on the Valheim calculations below.
Raise SOTP to SEK 215-325, EV/adj. EBIT 23-20x ’21e-‘22e
In terms of valuation we raise our SOTP fair value range to SEK 215-325 (195-305) per share. Scenario #2 indicates a price per share of SEK 295 by discounting our 21/22e EBITDA estimate by a WACC of 7.0%. In terms of multiples, we find that based on our updated estimates and the current share price, Embracer is trading at an EV/adj. EBIT of 21-18x for 21/22e-22/23e, which is ~20% above the corresponding multiple for Ubisoft according to FactSet consensus (which is now the best peer for
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