Embracer: Strong beat vs. cons and 8 acquisitions - Introduce
Q1’20/21e details
Embracer delivered a strong quarter today, which beat consensus expectations, with an Adj. EBIT of SEK 712m, +65.2% vs. ABGSCe and +64.7% vs. consensus. Reported net sales were SEK 2,069m, +25.6% vs. ABGSCe and +23.4% vs. consensus. Driven by new releases performing above management expectations and strong back catalog, bolstered by COVID-19 tailwinds which aided player engagement and the amount of players as stay-at-home regulations were enforced. Ultimately the Games segment saw revenues of SEK 1,622m, and as such represented 78.4% of total revenues, a new record. The Games segment grew 71% organically y-o-y, and Embracer will now start reporting organic growth as an KPI, which will enhance visibility to investors. A total of 8 acquisitions has been announced in conjunction with the report, the most important being Metro Exodus developer 4A Games. We expect the acquisitions alone to add ~15% to current FY Adj. EBIT, and also benefit Embracer by keeping Metro Exodus royalties in-house.
We expect positive consensus Adj. EBIT revisions
We can see consensus making positive estimate revisions to Adj. EBIT for 2020/2021e of approximately ~25% on the back of the new acquisitions and on the report.
Final thoughts
Embracer has been on a very strong run this year, up ~98% YTD and ~85% since the through in March, driven by gaming being one of the few sectors that actually benefited from COVID-19, and by large international gaming peers like Ubisoft and Take-Two Interactive confirming strong COVID-19 tailwinds in the Apr-June period. In terms of the Q1’20/21e report, we believe that there have been a lot of expectations in regards to acquisitions, which given todays news with 8 new acquisitions, have been more than satisfied.
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