Embracer reports Q3’21/22e on February 17. We expect a stable quarter with sales of SEK 4,355m for y-o-y growth of 101%, of which 30% organic. We forecast adj. EBIT of SEK 1,104m, for a margin of 25% (seasonally lower due to higher contribution from Partner/Publishing). Breaking down the sales, we expect SEK 3,299m from Games, and SEK 1,056m from Partner/Publishing, where we expect strong growth (30% y-o-y) from new deals for this year. In Games, we expect contributions to organic growth from Coffee Stain and Deep Silver in the quarter impacted by new releases, DLCs and a strong back catalogue. Organic growth in Games continues to be lumpy – we believe the normalized longer-term organic growth for Embracer is ~10% (i.e. above market). We also expect to see continued strong momentum in the mobile game segment, which grew 26% organically in Q2’21/22 on a proforma basis. Encouragingly, concurrent players on Steam continue to reach new highs, further supporting our view that the game found a new permanently higher plateau during COVID-19 to grow from.
Raising ‘22/23e-‘23/24e EPS by 13% and 15%
We have made some minor changes to underlying estimates ahead of Q3’21/22e, raising ‘21/22e sales by 1%. More importantly, we have factored in the acquisitions announced in December, raising ‘22/23e-‘23/24e adj. EBIT by 32% and EPS by 13% and 15%.
New fair value range: SEK 115-165 per share
Following our upgrades to EPS, we adjust our fair value range to SEK 115-165 (104-158) per share, the end points of which correspond to 15x-21x ‘22/23e EV/adj. EBIT. Furthermore, we will look for changes in company guidance on adj. EBIT and clues about the upcoming releases (e.g. Sains Row) in the report. The share is currently trading at 11.7x ‘22/23e adj. EBIT, -30% vs. its 5Y average.
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