Embracer Group - Strong report across the board for Embracer
Q4 adj. EBIT SEK 903, +51% vs. ABG, +45% vs. cons Prel.
consensus 21/22e adj. EBIT estimate up 7-10% Webcast call today at 09:00 CET Q4’20/21 details and 21/22e outlook Embracer delivered a very strong quarter today, which beat Infront consensus expectations, with an adj. EBIT of SEK 903m, +51% vs.
ABGSCe and +45% vs. consensus. The profitability beat is driven by three factors by our estimate 1) a large contribution from the Games segment (generating 82.
2% of revenues vs. consensus 77. 9%) which is a new record for Embracer and drives the strong gross margin of 59.
9%, 2) due to a favourable conditions for sales and marketing costs in Jan-March ’21 (confirmed by mobile gaming peers) and 3) reporting profit SEK 113m via minority ownership in Valheim developer. Reported net sales were SEK 2,404m, +2% vs. ABGSCe and +4% vs.
consensus. The Games segment saw revenues of SEK 1,975m, +4% vss. ABGSCe and +10% vs.
consensus, growing 85% organically in Q4 (local currencies). The adj. EPS amounted to SEK 2.
08 per share, growing +112% y-o-y. FCF was SEK 861m, growing +212% y-o-y. In other news Embracer expects to release more than 90 new titles in the current financial year, with a total development cost of SEK 2.
8-3. 3bn. Also management reports that Biomutant pre-orders is exceeding expectations.
Potential consensus estimate changes We could see consensus 21/22e adj. EBIT estimates come up 7-10% on the back of the report. Final thoughts Embracer’s share is up ~10% YTD, following a decline of ~20% since 3 May, due to a change in market sentiment and sector rotation: non-company specific drivers.
As such, Embracer is now trading at a 21/22e EV/adj. EBIT of 19x on our estimates, which is 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 can counteract the tough comparables from 2020, and plenty of M&A headroom. There is a webcast at 09:00 CET, link: h.
