Embracer Group - Solid Q3 expected, ’21 outlook remains strong
ABGSC Q3’20/21e adj. EBIT SEK 509m, -1. 4% vs. cons Raising 21/22e-22/23e adj.
EBIT by 4. 4-3. 5% New fair value set at SEK 161-238, EV/adj.
EBIT 31-19x Expect a solid Q3 driven by back-catalogue sales Looking at Q3’20/21e, due on 18 February, we expect a solid quarter where strong back-catalogue sales will make up for a lack of significant new releases. We forecast a topline of SEK 1,995m, +32. 3% y-o-y, but 4.
5% below consensus. Drivers include Games back-catalogue titles, which have benefitted from record promotional sales on Steam, like Metro Exodus (~600k copies), SpongeBob Squarepants Rehydrated (~300k copies) and Satisfactory (~700k copies) to name a few. As such, we forecast that Games will generate SEK 1,295m in revenues, constituting 64.
9% of the topline, driving solid margins. Partner Publishing tends to enjoy a strong seasonal effect in Nov-Dec and we forecast revenues of SEK 700m despite any major drivers, as boxed game sales successfully shifted to e-tailers. As such, on a group level we forecast an adj.
EBIT of SEK 509m, +68. 4% y-o-y, but 1. 4% below consensus, for a margin of 25.
5%. We think this will yield an adj. EPS of SEK 1.
18, +35. 9% y-o-y. Estimate changes driven by Coffee Stain revisions We raise our adj.
EBIT estimates by 4. 4-3. 5% for the next two financial years, driven mainly by significant revisions for Coffee Stain.
See page 3 for details. Next FY adj. EBIT at historical levels despite strong outlook Following our estimate changes, we raise our SOTP fair value range to SEK 161-238 (157-228) per share.
We also find that at the current share price, Embracer is trading at a 21/22e EV/adj. EBIT of ~22x on ABGSC estimates, this is ~10% above the historical average f12m levels and ~15% below our peer group median. This is despite the fact that Embracer has ~SEK 20bn in M&A headroom (which could add ~30% to our 21/22e adj.
EPS estimates), a new games pipeline that features new releases with a development cost of ~SEK 2bn (+100% y-o-y) an.
