Embracer Group - Estimate beat, record pipeline for next FY
Q3 adj. EBIT SEK 603m, +19% vs. ABG, +16% vs. cons Estimates driven by Q3, game delays, D&A guidance SOTP fair value SEK 195-305, 21/22e EV/adj.
EBIT 23x Strong back-catalogue drives estimate beat in Q3 Embracer beat estimates today mainly thanks to a strong performance by the back-catalogue within Games and the Partner Publishing segment. Revenues were SEK 2,168m, +8.7% vs. ABGSCe and +3.7% vs.
consensus. Games contributed SEK 1,356m, +4.7% vs. ABGSCe, contributing 62.5% of top-line, and growing 21% organically in local currencies (now 54% organic growth over the last nine months).
The back-catalogue saved a quarter, which featured few new sizeable releases, contributing SEK 1,083m (80%) of Games revenues: a testament to the quality of Embracer’s games over the last few years. Adj. EBIT was SEK 603m, +18.6% vs.
ABGSCe and +15.6% vs. cons., growing 99.8% y-o-y. Adj.
EPS was SEK 1.06, growing 55.8% y-o-y. Next FY game development cost ~SEK 2.7bn (excl. Q4 M&A) Embracer’s next FY (April ’21 – March ’22) features a very exciting pipeline of new games, which as of 31 Dec features new games with a development cost of SEK 2.5-3.0bn.
This is ~3x the size of the current FY pipeline, excluding the contribution from the latest acquisitions of Gearbox Software, Aspyr Media, and Easy Brain, which are estimated to close in April 2021. As such Embracer is about to reap the benefits of many years of game development/investments, further shifting investor focus to the organic performance of the groups studios (not only M&A). In terms of M&A, Embracer has available cash and credit facilities of ~SEK 10bn, and after the extraordinary general meeting planned for 26 February, we think M&A headroom will be ~SEK 20bn.
In terms of estimate changes there are several drivers: the Q3 report, game delays, new D&A guidance and the very strong launch of Valheim. See page 4 for detailed estimate changes. Raise SOTP fair value to SEK 195-305 (180-280) Following our estimate changes ....