Solid back catalogue performance to drive the quarter
Our research suggest that Embracer’s back catalogue sales will drive solid revenues in Q4’19/20e, which is especially important in a quarter that lacks any notable new releases. We believe that Metro Exodus will be the largest back catalogue revenue driver, which was released on Steam on 14 Feb 2020 and appears to have gathered +200k new game owners, combined with a solid performance on PS4 and Metro Exodus remaining on Epic’s Top 20 list. Additionally, the PlayStation 4 release of Hunt: Showdown appears to have been well received, gathering favourable reviews and ~170k new game owners on PlayStation 4. For a more detailed breakdown see pages 4-7. On a group level we now forecast sales of SEK 1,245m, a gross margin of 52.3%, and an Adj. EBIT of SEK 238m, for a margin of 19.1%.
Q4’19/20e revisions: THQ, Coffee Stain, Partner Publishing
Following our end of quarter game sales update, we’ve fine-tuned our estimates for Q4’19/20e. We lower our Q4 sales estimate for THQ Nordic from SEK 300m to SEK 250m, due to slightly weaker back catalogue sales than expected. We also lower our Q4 sales estimate for Coffee Stain from SEK 70m to SEK 45m due to the lack of a Satisfactory release on Steam, but Update 3 should still drive solid revenues on the Epic Games Store. Finally, we increase our Q4 revenue estimate for the Partner Publishing segment, from SEK 400m to SEK 500m, due to the strong launch of Doom Eternal. We do however note that physical sales appear to have been weaker than usual for a game like Doom Eternal, due to the COVID-19 outbreak.
EV/Adj. EBIT 23.6x-12.0x for 19/20e-21/22e
Based on our updated estimates, Embracer is trading at an EV/Adj. EBIT of 23.6x-12.0x for 2019/2020e-2021/2022e. This is a discount of 29.4% compared to the 3-year average NTM EV/Adj. EBIT. It is also a discount of 18.6% compared to the average ‘20e EV/EBIT of our mid-sized peer group based on FactSet consensus.
https://www.introduce.se/foretag/embracer-group/Equity-research/2020/3/embracer-group---end-of-quarter-game-sales-update/
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