Embracer Group - New game pipeline to countertact comps ’21e
Q4 adj. EBIT SEK 903m, up 51% vs. ABG, 45% vs. cons Raising adj.
EBIT by ~7% 21/22e-22/23e on Q4 report SOTP fair value range up to 225-345 (215-325) per share Games yield record 82% of sales, 89% via digital channels Embracer delivered a very strong quarter today, which beat Infront consensus expectations. Adj. EBIT was SEK 903m, up 51% vs.
ABGSCe and +45% vs. consensus. We attribute the profitability beat to three factors: 1) a large contribution from the Games segment (generating 82% of revenues vs.
consensus 78%) of which 89% was generated via digital channels (up 15pp y-o-y) thus driving a strong gross margin of 59. 9%; 2) lower than expected other external expenses due to favourable conditions for sales and marketing activities in Jan-March ’21 (confirmed by mobile gaming peers); and 3) by reporting profit of SEK 113m via Embracer’s minority ownership in Valheim developer. Lastly, the adj.
EPS of SEK 2. 07 grew 112% y-o-y. Raising adj.
EBIT by ~7% for 21/22e-22/23e After the Q4’20/21 report, we increase our adj. EBIT estimates by 7. 4-6.
9% for 21/22e-22/23e on the back of the strong report. In terms of Q1’21/22e, new games with a development cost in the area of SEK 300-350m will be released, where we estimate that Biomutant will account for a majority since the remaining titles are mainly re-releases on new platforms (see page 5). We factor in 900,000 Biomutant copies sold in Q1, which we think is relatively conservative given current sales rankings.
Raising fair value range to SEK 225-345 We raise our SOTP fair value to SEK 225-345 per share. Embracer is now trading at EV/adj. EBIT of ~19x on 21/22e, 1% above the five-year historical average.
This is despite Embracer having a new game pipeline in the SEK 2. 8-3. 3bn development cost (recent M&A included), which we think puts Embracer in a unique position (among gaming companies 2021) to counteract tough comparables from 2020.
In addition, we estimate that M&A headroom could add 15-16% to our current FY.
