Equity Research - 02 May 2019 08:42 CET

THQ Nordic Reason: Estimate changes Company sponsored research Stage set for record quarter Not rated

 Positive earnings revision for Q5 ’18/Q1 ’19e Estimate changes (%)  Satisfactory early-access boosting EBIT 2018e 2019e 2020e  ‘19e EV/EBIT exceeding three-year NTM average Sales 0.9% 0.0% 0.0% EBIT (rep) 5.9% 0.0% 0.0% ABGSC Q5 ’18e/Q1 ’19e outlook EPS (rep) 6.2% 0.0% 0.0% For Q5’ 18e/Q1 ’19e, due on 22 May, we expect sales of SEK 1,550m, Source: ABG Sundal Collier driven by sales of Exodus and Partner Publishing, which, amongst Share price (SEK) 30/04/2019 2 1 9 .2 other prominent titles, published the highly appraised Resident Evil 2 and Devil May Cry 5 this quarter. We expect that this will yield an EBIT of Technology Hardware & Equipment, SEK 190m, corresponding to an EBIT margin of 12.3%. Looking at THQNb.ST/THQNb.ST THQ’s newest metric, operational EBIT, we expect SEK 256m, corresponding to a margin of 16.5%. MCap (SEKm) 18,051 MCap (EURm) 1,694.3 Satisfactory & Metro Exodus Net debt (EURm) 34 We originally expected an early-access version of Satisfactory, developed by , to be released in Q2 ’19; however, it No. of shares (m) 82.4 was made available on the Store on the 19 March. Reviews Free float (%) 46.2 have been limited so far, but generally favourable. Therefore, we have Av. daily volume (k) 467.2 increased Q1 ’19e sales for Coffee Stain, and we estimate that

approximately 250k copies will have been sold. Historically, Coffee Stain Next event Q4 report: 22 May has enjoyed high EBIT margins – approximately 51% in ’17 – and we Performance expect similar margins for Q1 ’19 for Satisfactory, contributing to THQ’s 900 group EBIT. Regarding Metro Exodus, sales are difficult to track on the 800 , but pre-orders on seem to have reached 700 600 around 300k copies. We keep our previous estimate and expect ~1m 500 copies to have shipped in Q1’19. Epic announced that Metro Exodus has 400 300 sold 2.5x more copies than Metro Last Light did in the same time on 200 Steam. However, it did not specify a specific timeframe, so it is hard to 100 0

draw any concrete conclusions from the statement.

Jul 17 Jul

Jul 18 Jul

Jan 17 Jan

Jan 18 Jan

Jan 19 Jan

Mar 17 Mar

Mar 18 Mar

Mar 19 Mar

Nov 16 Nov

Sep 17 Sep

Nov 17 Nov

Sep 18 Sep

Nov 18 Nov

May 17 May May 18 May Valuation THQ Nordic OMX STH PI At the current share price, THQ is trading at a ‘19e EV/EBIT of 28.9x 1m 3m 12m based on ABGSC estimates. This is approximately 55% above the three- Absolute (%) 5.6 24.0 46.3 year average NTM EV/EBIT of 18.6x. Based on FactSet consensus OMX STH PI (%) 6.0 10.1 7.7 estimates, THQ is trading at a ‘19e EV/EBIT of 21.7x, which is Source: FactSet approximately 17% above the three-year average NTM EV/EBIT.

Lead analyst: Stefan Knutsson Erik Moberg Jesper Birch-Jensen

SEKm 2016 2017 2018e 2019e 2020e 2018e 2019e 2020e Sales 302 508 5,674 5,390 5,670 P/E (x) 45.8 37.8 30.1 EBITDA 132 273 1,358 1,486 1,700 P/E adj (x) 45.8 37.8 30.1 EBITDA margin (%) 43.8 53.7 23.9 27.6 30.0 P/BVPS (x) 5.50 4.80 4.14 EBIT adj 95 188 593 704 878 EV/EBITDA (x) 15.2 13.7 11.8 EBIT adj margin (%) 31.5 37.1 10.5 13.1 15.5 EV/EBIT adj (x) 34.8 28.9 22.8 Pretax profit 93 182 568 680 854 EV/sales (x) 3.64 3.77 3.53 EPS rep 1.00 1.76 4.79 5.79 7.27 ROE adj (%) 18.6 13.6 14.8 EPS adj 1.00 1.76 4.79 5.79 7.27 Dividend yield (%) 0 0 0 Sales growth (%) 41.8 68.1 1,017.9 -5.0 5.2 FCF yield (%) -8.2 1.5 1.5 EPS growth (%) 17.0 75.8 172.5 21.1 25.5 Net IB debt/EBITDA 0.3 0.0 -0.2 Source: ABG Sundal Collier, Company data Please refer to important disclosures at the end of this report This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II. THQ Nordic

Opportunities Risks A large part of the IP portfolio is still not generating any Despite THQ Nordic’s broad portfolio, there are risks income, but the pipeline of game launches is strong, associated with larger title releases as they have a including a few AAA titles. Together with a strong relatively large impact on sales right after launch. management with a clear M&A agenda, THQ is well suited Moreover, disappointing releases or reviews could dent for future value-adding acquisitions, which could mean end-customer enthusiasm and hurt the company's securing more IPs and portfolio expansion. The acquisition finances, especially during the launch period. Delays in of further adds new distribution/publishing planned and ongoing gaming projects could adversely channels, an opportunity to reach further and wider with affect the group’s profitability. Acquiring established but the current portfolio and expected pipeline, aligning them temporarily underperforming gaming brands and gradually for additional growth. improving them increases the potential risk of performing below market expectations.

Geographical breakdown, sales, SEKm Business area breakdown, sales, SEKm

1,200 2,500

1,000 2,000

800 1,500

600 1,000 400 500 200 0 0 THQ Nordic Partner Owned titles Publishing titles Physical sales Digital sales Publishing/Film

Sales Sales

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data EPS estimate changes, 2018e, SEK EPS estimate changes, 2019e, SEK

6.5 8.0

6.0 7.5

5.5 7.0 5.0 6.5 4.5

6.0 4.0

3.5 5.5

ABGSC FactSet Consensus Mean ABGSC FactSet Consensus Mean Source: ABG Sundal Collier, FactSet Source: ABG Sundal Collier, FactSet Quarterly sales and adj. EBIT, SEKm Company description THQ Nordic acquires, develops and publishes PC and 1,600 160 console games for the global gaming market. Its core 1,400 140 business model consists of acquiring established gaming 1,200 120 brands and gradually improving them. Much of THQ’s soul 1,000 100 stems from entrepreneur, founder and CEO Lars Wingefors, who at the age of 16 founded Nordic Games, 800 80 which we today associate with THQ Nordic. The game 600 60 changer came in 2013 when most of today’s brand 400 40 portfolio was acquired from THQ Inc’s insolvency. At the 200 20 start of 2018, the company acquired Koch Media, which focuses on game development and gives THQ a larger 0 0 publishing business. quarterly sales quarterly adj. EBIT Source: ABG Sundal Collier, Company data

2 May 2019 ABG Sundal Collier 2

THQ Nordic

Estimates

Estimate changes (SEKm) Estimate changes (SEKm) Old forecast New forecast Change Net sales 2018/19e* 2019/20e 2020/21e 2018/19e* 2019/20e 2020/21e 2018/19e* 2019/20e 2020/21e Games THQ Nordic 926.1 1040.0 1150.0 926.1 1040.0 1150.0 0.0% 0.0% 0.0% Games Deep Silver 1628.2 1390.0 1500.0 1628.2 1390.0 1500.0 0.0% 0.0% 0.0% Games Coffee Stain 38.9 200.0 220.0 88.9 200.0 220.0 128.5% 0.0% 0.0% Games Total 2593.2 2630.0 2870.0 2643.2 2630.0 2870.0 1.9% 0.0% 0.0% Partner Publishing/Film 3030.4 2760.0 2800.0 3030.4 2760.0 2800.0 0.0% 0.0% 0.0% Group 5623.6 5390.0 5670.0 5673.6 5390.0 5670.0 0.9% 0.0% 0.0%

COGS -3411.1 -3088.4 -3143.0 -3421.1 -3088.4 -3143.0 Gross profit 2212.5 2301.6 2527.0 2252.5 2301.6 2527.0 1.8% 0.0% 0.0%

Capitalized costs & other income 733.5 657.0 686.8 737.4 657.0 686.8 Operating costs -1626.7 -1472.6 -1513.9 -1631.4 -1472.6 -1513.9 EBITDA 1319.3 1486.0 1699.9 1358.5 1486.0 1699.9 3.0% 0.0% 0.0%

Depreciation & amortization -758.9 -782.2 -822.2 -765.2 -782.2 -822.2 EBIT 560.3 703.8 877.7 593.3 703.8 877.7 5.9% 0.0% 0.0% Operational EBIT 786.1 995.1 1169.0 819.1 995.1 1169.0 4.2% 0.0% 0.0%

Net financials -25.4 -23.5 -23.7 -25.4 -23.5 -23.7 Taxes -122.4 -149.7 -187.9 -129.6 -149.7 -187.9 Net profit 412.6 530.6 666.1 438.3 530.6 666.1 6.2% 0.0% 0.0%

Net sales growth y-o-y 2018/19e* 2019/20e 2020/21e 2018/19e* 2019/20e 2020/21e 2018/19e* 2019/20e 2020/21e Games THQ Nordic 1008.0% 12.3% 10.6% 1017.9% 12.3% 10.6% 9.9 pp 0.0 pp 0.0 pp Games Deep Silver* -14.6% 7.9% -14.6% 7.9% 0.0 pp 0.0 pp 0.0 pp Games Coffee Stain 414.1% 10.0% 125.0% 10.0% 0.0 pp -289.2 pp 0.0 pp Games Total* 1008.0% 1.4% 9.1% 1017.9% -0.5% 9.1% 9.9 pp -1.9 pp 0.0 pp Partner Publishing/Film* -8.9% 1.4% -8.9% 1.4% 0.0 pp 0.0 pp 0.0 pp Group* 1008.0% -4.2% 5.2% 1017.9% -5.0% 5.2% 9.9 pp -0.8 pp 0.0 pp

Margins 2018/19e* 2019/20e 2020/21e 2018/19e* 2019/20e 2020/21e 2018/19e* 2019/20e 2020/21e Gross margin 39.3% 42.7% 44.6% 39.7% 42.7% 44.6% 0.4 pp 0.0 pp 0.0 pp EBITDA margin 23.5% 27.6% 30.0% 23.9% 27.6% 30.0% 0.5 pp 0.0 pp 0.0 pp EBIT margin 10.0% 13.1% 15.5% 10.5% 13.1% 15.5% 0.5 pp 0.0 pp 0.0 pp * Change of financial year, contains 5 quarters

Source: ABG Sundal Collier, company data

Sales estimates (SEKm) EBIT estimates (SEKm)

7000 1200 6052 1057 5686 6000 1000 5360 919 5,670 5000 5,390 5,674 800 878 4000 631

600 SEKm 3000 SEKm 593 704

400 2000 188 1000 200 508 95 302

0 0 2016 2017 2018/19e 2019/20e 2020/21e 2016 2017 2018/19e 2019/20e 2020/21e

FactSet Consensus ABGSCe FactSet Consensus ABGSCe

Source: ABG Sundal Collier, FactSet consensus, company data Source: ABG Sundal Collier, FactSet consensus, company data

2 May 2019 ABG Sundal Collier 3

THQ Nordic

Detailed estimates (SEKm) SEKm P/L Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19e 2015 2016 2017 2018/19e 2019/20e 2020/21e Games - THQ Nordic 135 146 124 352 170 926 1040 1150 Games - Deep Silver 257 338 252 187 595 1628 1390 1500 Games - Coffee Stain 13.9 75 89 200 220 Partner Publishing/Film 242 354 897 828 710 3030 2760 2800 Net Sales 82 86 85 255 633 837 1273 1381 1550 213 302 508 5674 5390 5670 Capitalized R&D 13 14 19 33 58 93 102 106 121 8 36 80 480 497 517 Other operating income 1 2 -3 3 34 29 64 90 40 5 9 3 257 160 170 COGS -25 -24 -30 -69 -320 -466 -895 -838 -902 -70 -119 -148 -3421 -3088 -3143 Gross profit 71 78 71 222 405 494 544 738 809 156 228 442 2990 2959 3214 Opex -29 -38 -37 -65 -179 -287 -329 -412 -425 -51 -96 -169 -1631 -1473 -1514 D&A -10 -9 -11 -54 -119 -154 -124 -174 -194 -38 -37 -84 -765 -782 -822 EBIT 32 30 24 102 107 53 91 152 191 67 95 188 593 704 878 Operational EBIT 106 157 88 124 194 256 819 995 1169 Net financials 0 0 -1 -5 -9 -4 -3 -4 -5 -1 -2 -6 -25 -24 -24

EBT 31 30 23 97 98 49 88 148 185 66 93 182 568 680 854

Taxes -8 -7 -4 -24 -17 -15 -23 -34 -41 -14 -21 -43 -130 -150 -188 Net profit 24 23 19 73 81 33 65 114 145 51 72 139 438 531 666

EPS basic (SEK) 0.33 0.32 0.24 0.93 1.02 0.42 0.74 1.32 1.58 0.85 1.00 1.76 5.08 5.79 7.27 EPS diluted (SEK) 0.33 0.32 0.24 0.93 1.02 0.38 0.74 1.32 1.58 0.85 1.00 1.76 5.04 5.79 7.27

Revenue grow th Q/Q -36.1% 4.5% -1.0% 201.6% 147.8% 32.3% 52.0% 8.5% 12.3% N/A N/A N/A N/A N/A N/A Revenue grow th Y/Y 89.9% 62.2% 8.8% 99.3% 672.8% 878.8% 1403.1% 440.6% 144.9% 19.6% 41.8% 68.1% 1017.9% -5.0% 5.2%

Gross margin 70.1% 71.6% 64.9% 72.9% 49.5% 44.4% 29.7% 39.3% 41.8% 67.1% 60.6% 70.9% 39.7% 42.7% 44.6% EBIT margin 38.9% 35.5% 28.4% 39.9% 16.9% 6.3% 7.1% 11.0% 12.3% 31.3% 31.5% 37.1% 10.5% 13.1% 15.5% Net margin 28.7% 27.1% 22.5% 28.7% 12.8% 4.0% 5.1% 8.3% 9.3% 24.1% 23.8% 27.4% 7.7% 9.8% 11.7%

Source: ABG Sundal Collier, company data

Revenue split (SEKm) EBIT (SEKm)

6000 5674 5670 1000 40% 5390 878 900 35% 5000 800 704 30% 700 4000 593 25% 600

3000 500 20%

400 15% 2000 300 188 10% 200 1000 508 95 5% 302 100

0 0 0% 2016 2017 2018/19e 2019/20e 2020/21e 2016 2017 2018/19e 2019/20e 2020/21e THQ Nordic Deep Silver Coffee Stain Partner Publishing EBIT EBIT margin

Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

Personnel costs (SEKm) & Activated work (%) ROE, ROIC, ROCE (%)

900 45.0% 80.0% 832 815 833 800 40.0% 70.0%

700 35.0% 60.0%

600 30.0% 50.0% 500 25.0% 40.0% 400 20.0% 30.0% 300 15.0% 19.9% 20.0% 200 10.0% 15.5% 94 14.8% 100 52 5.0% 10.0%

0 0.0% 0.0% 2016 2017 2018/19e 2019/20e 2020/21e 2016 2017 2018/19e 2019/20e 2020/21e Personnel costs % Activated ROE ROIC ROCE

Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

2 May 2019 ABG Sundal Collier 4

THQ Nordic

THQ: From Karlstad to Sydney

THQ Nordic is in the business of acquiring, developing and publishing PC and console games for the global games market. Since its inception, the company has established a wide and diversified catalogue of over 100 owned franchises, following its acquisitions of the Austrian game publisher JoWooD in 2011 and the IPs from the American game developer and publisher THQ in 2013 after its bankruptcy. During 2018, THQ Nordic acquired Koch Media, through which the company strengthened its game portfolio with several AAA-titles – for example Metro Exodus and 2 – and its global publishing reach.

Several smaller acquisitions followed during 2018, and in early 2019, THQ acquired , a leading game developer based in Prague, behind the successful award-winning title Kingdom Come: Deliverance, and Australian publisher 18POINT2. Its many acquisitions have allowed THQ Nordic to realize a global reach within marketing, sales and distribution, both online and offline. Over the years, THQ Nordic has also established a global physical presence, with its group head office located in Karlstad, Sweden along with operational offices in , Austria and , Germany. Working alongside are THQ Nordic’s fifteen internal game development studios, which are based in Germany, the UK, Finland, the US and Sweden and engage around 2,000 people.

Following the company’s history of successful acquisitions, THQ Nordic’s sources of revenue can be divided into four main business areas: game development through THQ Nordic, Deep Silver and Coffee Stain along with Partner Publishing/Film, in which Koch Media has assumed a major role. THQ Nordic has developed games within several well-established and iconic franchises with the likes of , and . Deep Silver became a part of THQ Nordic through the acquisition of Koch Media during 2018, and the studio is currently developing a AAA-sequel in the Dead Island universe. Coffee Stain is a leading game developer and publisher in the Nordics, which was acquired by THQ Nordic during the autumn 2018, and is best known for the huge of its IP. The Partner Publishing/Film segment’s main focus is the distribution of PC and console games, both online and offline, along with a film division releasing up to 10 international feature productions to theatres each year as well as video distribution.

THQ Nordic’s core business model has historically involved expanding distribution through physical and digital distribution points, asset care by and remastering older but popular IPs and releasing expansion packs or sequels in franchises with an established fan base. However, as THQ Nordic has grown rapidly since its inception, the business model has expanded to include in-house development of new games, acquisition of game development studios and publishers, and an entry into the mobile games market.

When it boils down to it, THQ Nordic’s success has been derived from the company’s ability to allocate capital in a highly efficient way, earning it a high return on investment. THQ Nordic’s history of successful capital allocation is in no small measure due to the prowess of the company’s CEO, founder and majority owner Lars Wingefors, who has been a driving factor behind THQ Nordic’s successful acquisition of IPs, game developers and publishers.

2 May 2019 ABG Sundal Collier 5

THQ Nordic

Acquisitions The ability to make successful acquisitions has been a key factor in THQ’s aggressive growth and a lot of the value stems from it. Looking ahead, we believe that it is reasonable to assume that M&A will continue. Acquisitions have usually been announced in conjunction with quarterly reports, which CEO Lars Wingefors has said is pure coincidence, as they coincide with the work cycles at THQ.

Historically, acquisitions have usually been announced approximately 5 months after the completion of a directed share issue. Seeing as THQ implemented a share issue on the 21 February ’19, it would seem likely that a new acquisition will be announced with the Q2’19 report on the 14 August ‘19.

Combining the funds received in the latest share issue of SEK 2,090m with the cash position of SEK 921m at the end of ’18 leaves THQ with the largest war chest to date. We do not think this necessarily means that THQ will acquire just one large company, finding another Koch Media would be hard, in our opinion. Is seems more likely that THQ will acquire several smaller corporations, much like it did after the directed share issue in June ’18.

THQ Acquisition timeline

Source: ABG Sundal Collier, company data

Attempting to guess what THQ will acquire next becomes highly speculative, seeing as it is willing to buy companies as far away as Australia. However, if it were to seek an acquisition in the Nordic region, the Danish developer and owner of the franchise, IO Interactive, could be a candidate.

IO Interactive is a Danish based in , but recently opened a new office in Malmö, Sweden, which will work on an unannounced new project.1

The company was previously owned by Square , which chose to part ways with the company in 20172. After a , the studio has proceeded to exist as an independent developer of AAA titles, with its latest title, Hitman 2, reaching sales of 700k copies on PS4 and One, according to VGChartz.3

1 Variety: Hitman developer opens new studio, teases future projects 2 IGN: Future of Hitman unclear at this stage 3 VGChartz: Hitman 2 2 May 2019 ABG Sundal Collier 6

THQ Nordic

Following the parting with , IO Interactive’s CEO, Hakan Abrak, announced that the company is “open to opportunities with future collaborators and partners” on the Hitman franchise4. After this, the company entered into an exclusive publishing and distribution agreement with Warner Bros. Interactive Entertainment for Hitman: Definitive Edition and Hitman 2. However, as of yet, no new Hitman game, or deal with Warner, has been announced.

In November ’18, rumours began spreading that was interested in acquiring IO Interactive5. However, ever since, nothing new has been announced regarding the purchase. This could either mean that the deal is still in the making, or that Microsoft is out for whatever reason, possibly leaving the door open for THQ.

IO Interactive, P&L 2013-2018 (DKKm) (DKKm) 2013 2014 2015 2016 2017 2018 Sales 209.9 178.2 146.1 213.5 210.6 120.8 COGS 66.7 66.6 70.7 114.2 89.5 33.3

Gross Income 143.2 111.6 75.5 99.3 121.1 87.5 Gross margin 68.2% 62.6% 51.6% 46.5% 57.5% 72.4%

EBIT 1.5 0.3 5.3 1.5 4.7 51.6 EBIT margin 0.7% 0.2% 3.6% 0.7% 2.2% 42.7%

PTP 3.7 1.4 6.5 1.8 5.0 52.5 PTP margin 1.8% 0.8% 4.5% 0.8% 2.4% 43.4%

Net Income 2.8 0.9 4.9 1.3 3.9 40.9 Net margin 1.3% 0.5% 3.4% 0.6% 1.9% 33.9%

Source: ABG Sundal Collier, FactSet, company data

4 : IO Interactive becomes an independent studio 5 OnlySP: How Microsoft’s rumored purchase of IO Interactive represent an important change 2 May 2019 ABG Sundal Collier 7

THQ Nordic

Game pipeline

THQ Nordic currently has 77 game projects under development, 29 of which have already been announced to the public. In total, THQ owns over 100 trademarks. However, we have identified a few franchises that we believe are especially interesting given how well prequels have sold and their high ratings by critics.

THQ Nordic: Selected franchises

Selected franchises Franchise Sequel announced? Platforms Genre Developer Publisher Release date Prequel copies sold Revenues (SEKm)

Dead Island Yes PC, Playstation, Xbox Action-RPG Deep Silver TBA 14 mn* 1,928*

Shenmue Yes PC, Playstation Action-Adventure Neilo Deep Silver Q3'19 2.0 mn**

Saints Row No PC, Playstation, Xbox Action-Adventure Deep Silver N.A. 32 mn* 5,565*

Red Faction No PC, Playstation, Xbox Action-Shooter Volition THQ Nordic N.A. 6.2 mn**

*According to THQ Nordic **According to VGChartz Source: ABG Sundal Collier, company data

Dead Island Dead Island is an Action-RPG influenced by the survival and horror genres. The games are centred on the challenge of surviving a zombie-infested island through a first-person perspective. The is heavily tilted towards melee combat and the player progresses through the game by completing quests and tasks.

THQ estimates that past instalments have sold approximately 14 million copies, corresponding to revenues of SEK 1,928m. is being developed by an external studio, Sumo Digital, but will be published by Deep Silver. The release date has not yet been announced, but we believe that we could see a release scheduled for Q4’19.

Shenmue Shenmue is an Action- series that usually consists of open-world environments with the player engaging enemies in martial arts combat in a classical revenge storyline. The original Shenmue game was the most expensive video game ever developed at the time (1999), with an estimated production and marketing cost of USD 47-70m.

VGChartz estimates that past instalments have sold approximately 2 million copies, most of which are attributable to the first game, which sold approximately 1.2 million copies. Shenmue III is being developed by an external studio, Neilo, but will be published by Deep Silver. The game is set to be released on the 27 August 2019.

2 May 2019 ABG Sundal Collier 8

THQ Nordic

Saints Row Saints Row is an Action-Adventure series that tells the story of a gang called the Third Street Saints. Players are usually introduced to an open-world map that combines action, adventure and vehicular gameplay that allows the player to freely roam the map. The series is known for its comedic elements, and the storylines are written as comedies that feature elements from popular culture.

THQ estimates that past instalments have sold approximately 32 million copies, corresponding to revenues of SEK 5,565m. So far, THQ Nordic has not announced a sequel in the Saints Row universe, although a movie based on the series was recently announced6. However, we believe that it is very likely that a sequel to the latest game will be announced, seeing as past instalments have achieved very high sales and favourable scores.

Red Faction Red Faction is an Action-Shooter series that gained popularity as the initial game ran on a game-engine that allowed for a unique environmental destruction feature. The first two games of the series were traditional first person shooters featuring traditional shooter weapons and features. The third instalment used a third person style of gameplay, allowing the player to roam free in an open world, Mars-inspired environment.

VGChartz estimates that previous instalments in the Red Faction series have sold approximately 6 million copies. Like Saints Row, no official sequel has been announced by THQ yet. However, seeing as Red Faction gained wide scale popularity for its unique environmental features, achieved high sales and gained favourable Metacritic scores, we believe that a sequel is highly likely.

Game development overview 90 77 80 70 54 55 60 51 50 32 36 40 29 27 30 29 30 20 29 10 14 13 13 12 19 17 20 0 8 7

Announced Unannounced

Source: ABG Sundal Collier, company data

6 Gamespot: A Saints Row Movie Is Happening With Fate Of The Furious Director 2 May 2019 ABG Sundal Collier 9

THQ Nordic

Market overview

Global games market The gaming market has experienced a period of extremely rapid growth during the last decade. According to the market researcher Newzoo, the global games market grew by USD 35bn from 1972 to 2007. However, between 2007 and 2018 an estimated USD 100bn was added in revenues, representing a CAGR of 13.1%. As the market matures, the rapid growth will eventually flatten out, but Newzoo expects the global gaming market to grow by an estimated CAGR of 8.9% from 2018 to 2021, totalling USD 174bn, with the PC and console segment growing at a CAGR of 4.5% during that same period.

Global games market (USDbn), y-o-y growth (%), CAGR (%)

250 25%

200 20% 174 161 148 150 135 15% 122 101 100 10%

50 5%

0 0% 2016 2017 2018 2019e 2020e 2021e

Global games market y-o-y growth

Source: ABG Sundal Collier, Newzoo, company data

A multitude of factors has contributed to the fast growth of the gaming market during the 21st century. Gaming has evolved into a new entertainment phenomenon, with a target demographic of younger people, who are playing games more often than previous generations. Because of the relatively high upfront payment associated with PC and console games, the smartphone segment has experienced the highest growth in revenues and numbers of users, and Newzoo estimates that approximately 95% of the global number of gamers are playing mobile games.

Global games market segments (USDbn)

200

180

160

140 75 66 120 58 50 100 44 17 28 15 16 80 13 10 12 60 47 38 41 43 32 33 40 3 3 2 5 5 4 20 25 28 30 31 32 33 0 2016 2017 2018 2019e 2020e 2021e Downloaded/Boxed PC Browser PC Console Tablet Smartphone

Source: ABG Sundal Collier, Newzoo, company data

2 May 2019 ABG Sundal Collier 10

THQ Nordic

Geographical breakdown According to Newzoo, the number of gamers, globally, amounted to approximately 2.3 billion during 2018, aided by the rapid rollout of internet access in emerging markets, along with the global expansion of Chinese smartphone manufacturers offering affordable solutions. China has emerged as the largest games market in the world, both in terms of the online population and gaming revenue.

Gaming revenue, top 5 countries (USDbn)

40 34 35 32 30 28 25 24 24 25 22 22

20 18

15 12 12 13

10 6 4 4 4 4 4 5 5 4

0 China Japan Germany

2015 2016 2017 2018

Source: ABG Sundal Collier, Newzoo, company data

The Asia-Pacific region generated USD 66.2bn in ‘18, which corresponds to 49% of total global game revenues and a y-o-y growth of 8.3%. The growth and share of the total market has increased in recent years due to the continued growth in smartphone gaming, for which the region has the largest player base.

North America is the second largest region, with total revenues of USD 33.9bn in ‘18, which corresponds to 25% of total global game revenues and a 14.1% y-o-y growth

Growth in the fragmented EMEA region is somewhat slower, as adoption of mobile gaming has not been as prevalent. The region generated revenues of USD 29.9bn in ’18, which corresponds to 22% of total global game revenues and a 13.2% y-o-y growth rate.

Online population, top 5 countries (million)

900 850 789 802 800 740 700

600

500

400 283 294 300 261 265

200 116 118 120 121 71 72 73 76 100 44 45 47 48

0 China United States Japan South Korea Germany

2015 2016 2017 2018

Source: ABG Sundal Collier, Newzoo, company data

2 May 2019 ABG Sundal Collier 11

THQ Nordic

PC and console segment THQ Nordic’s core business model focuses on the PC and console segment of the global games market. Historically operations have involved expanding distribution through physical and digital distribution points, asset care by porting and remastering older but popular IPs and releasing expansion packs or sequels in franchises with an established fan base.

However, as THQ Nordic has grown rapidly since its inception, the business model has expanded to include in-house development of new PC and console games and acquisition of game development studios and publishers.

The PC and console segments of the global games market are displaying healthy growth, although below the total market level. Console was the second largest segment in 2018, with revenues of USD 38bn, and is expected to grow to USD 47bn in ‘21 with a CAGR of 7.5% (’18-’21). The overall PC segment, which includes browser PC games, was the third largest segment in ‘18. The segment generated revenues of USD 34bn in ‘18 and is expected to grow to USD 35bn in ’21, corresponding to a CAGR of 1.1% (’18-’21).7

PC & console market (USDbn), combined y-o-y growth (%) 90 16%

80 14% 70 12% 60 43 47 10% 38 41 50 33 32 8% 40 28 6% 30 4% 20 33 34 34 35 35 27 30 10 2%

0 0% 2015 2016 2017 2018 2019e 2020e 2021e PC Console Combined y-o-y growth

Source: ABG Sundal Collier, Newzoo, company data

7 Newzoo Global Games Market Report 2018 2 May 2019 ABG Sundal Collier 12

THQ Nordic

Market drivers and trends

Cloud Gaming Cloud Gaming is usually thought of like a Netflix for games. It enables gamers to play a game on any device without the physical hardware required to process it, or even needing a copy of the game itself.

The concept of cloud gaming has been present for decades, but it has been restrained by internet connection speeds, causing instability and high latency. According to Newzoo, the average internet connection speed has increased from 4.7 Mbps in 2010 to 18.7 Mbps in 2017, an opportunity which companies like Nvidia and Google – which recently announced its Stadia solution – seek to capitalise on.

Traditionally, game developers, which are often also publishers, have partnered with digital distributors such as Steam and physical retailers such as GameStop to sell their products, both of which usually receive a percentage of revenues.

However, cloud gaming looks to change traditional business models as it lends itself best to a subscription-based service, or rather gaming as a service (“GaaS”). It remains to be seen how publishers will react to challenges to their established models. We have already seen large publishers such as EA experiment with cloud gaming services through their Origin Access platform.8

Much like Spotify and Netflix changed the music and TV industries through a shift to subscription and stream-based services, cloud gaming stands to bring the same change to game developers and publishers. Can game developers and publishers remain profitable in an all-you-can-play model? How will the subscription fees be split between content owners? Will we see the end of USD 60 premium games?

Cloud gaming is still in its infancy, and adoption on mobile devices will most likely require a large expansion of 5G coverage and devices. However, it will likely increase the overall demand for games as new consumer groups get to access new demanding games without having to invest in expensive hardware.

Battle of the digital games stores: Steam vs. Epic Epic made headlines in December ’18 when it announced the launch of its online games store, offering a generous 88% revenue share as opposed to Steam’s 70%. Since then, the headlines have continued, as Epic Store acquired exclusive deals for online distribution of Massive’s The Division 2, THQ Nordic’s Metro Exodus and Games’ 3. Steam has since adjusted its profit share model, claiming 30% of revenues at game launch, 25% of revenues between USD 10 and USD 50m, and 20% of all revenues above USD 50m.

At the annual Game Developers Conference of 2019 (“GDC”), 4,000 game developers were asked if Steam, in its current form, justifies a 30% cut.9

Does Steam, in its current form, deserve a 30% cut?

Not Sure / Don't know 17%

No 32%

Probably not 27%

Maybe 17%

Yes 6%

0% 5% 10% 15% 20% 25% 30% 35%

Source: ABG Sundal Collier, Game Developers Conference 2019, company data

8 Newzoo Cloud Gaming: The Perfect Storm 9 Polygon: The platform wars are heating up on PC 2 May 2019 ABG Sundal Collier 13

THQ Nordic

The increased competition amongst digital games stores will likely result in lower game prices at times, which will negatively affect game developers. However, we believe that the fact that developers have more options to keep a higher percentage of revenues will offset this effect, and have a positive effect on THQ’s top line.

As THQ was an early adopter of the Epic Store, we believe that it is set to enjoy greater revenues from Metro Exodus sales. However, Satisfactory is also exclusive to the Epic Store for 12 months, and THQ seems likely to continue to choose the attractive revenue split offered by Epic.

Game industry layoffs In only the first three months of 2019, a string of layoffs have been announced from large developers, such as Blizzard and EA, to smaller studios, such as ArenaNet. Activision Blizzard announced layoffs off 8% of its total workforce, corresponding to approximately 800 people10. EA fired 4% of its total workforce, corresponding to 350 people, and closed its studio in Japan11. In both cases, mainly employees in administrative roles such as public relations, community developers and customer support staff were let go.

Events like this usually occur during times of industry and market transition, which seems to be the case here. Companies have been facing declining earnings, diminishing product pipelines, over-capacity and structural changes driven by technological advances such as the trends mentioned above. Another contributing factor might be the fact that the current generation of consoles is due to be replaced, as the Playstation 4 and were launched in 2013. Thus, it is possible that companies are putting new, capital-intensive projects on hold until the new generation of consoles have been launched12.

Selected layoffs 2019, part of total workforce (%)

Techland 3%

Next Games 19%

ArenaNet 35%

EA AU - Firemonkeys Studios 25%

EA 4%

Activision Blizzard 8%

0% 5% 10% 15% 20% 25% 30% 35% 40% % of total workforce

Source: ABG Sundal Collier, company data

With THQ’s recent financial success, we do not see this phenomenon hitting the company’s studios any time soon, rather it might provide THQ’s studios with potential new and experienced employees.

10 Polygon: What the hell happened at Activision Blizzard 11 Gamesindustry.biz: EA lays off 350 amid major organizational changes 12 Variety: Game industry layoffs driven by past mistakes 2 May 2019 ABG Sundal Collier 14

THQ Nordic

Sector overview

The PC and Console segment of the global games market is dominated by a few large corporations, including Activision Blizzard, Take-Two Interactive, , and Tencent, which together claimed approximately 44% of the global market in 2018. Alongside these behemoths is a large pool of independent, indie developers and mid-sized developers/publishers.

The Nordics, and particularly Sweden, have become a hotspot for game developers as it has given rise to several large and well-known developers: Massive, Dice, King and Mojang. In fact, the non-profit organization Game Habitat recently proclaimed that the city of Malmö in Sweden has the highest concentration of game developers per capita in the world13.

Valuation and operational performance overview across peer groups Global gaming peers Mcap Share price P/E (x) EV/EBIT (x) EV/EBITDA (x) EBIT-margin (%) EBITDA-margin (%) EV/Sales (x) CAGR '17-'21e Company Factset ticker Ticker (SEKm) Ccy SP 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e Sales EBIT

Activision Blizzard ATVI-US ATVI-US 352,854 SEK 460.6 17.9 22.2 18.8 16.3 13.3 16.4 13.1 11.1 12.6 14.7 12.0 10.5 33.7 32.8 34.9 16.3 35.7 36.7 38.2 38.7 4.5 5.4 4.6 4.1 4.3 9.0 Electronic Arts EA-US EA-US 270,114 SEK 901.6 25.2 21.8 19.3 16.5 17.6 15.1 13.0 11.3 16.2 13.9 12.2 10.5 30.2 30.6 32.0 16.5 32.9 33.2 34.3 36.3 5.3 4.6 4.2 3.8 2.9 3.8 Take-Tw o TTWO-US TTWO-US 104,632 SEK 924.6 21.2 19.7 17.8 15.1 14.6 12.8 10.6 7.7 13.6 11.9 10.3 7.6 22.6 24.0 26.6 15.1 24.2 25.8 27.5 27.3 3.3 3.1 2.8 2.1 17.4 20.1 Ubisoft UBI-FR UBI-FR 99,005 SEK 887.4 31.2 27.5 23.3 23.0 19.1 15.3 10.4 9.6 8.3 19.8 22.3 24.3 43.6 44.2 44.6 4.6 4.3 3.7 na 28.1 CD Projekt CDR-PL CDR-PL 50,549 SEK 525.9 111.8 na 13.1 16.6 88.7 na 10.0 11.9 84.9 na 8.8 12.1 37.1 17.9 67.3 16.6 38.8 25.5 76.2 75.8 32.9 60.8 6.7 9.1 65.1 77.6 Paradox PDX-SE PDX-SE 15,597 SEK 147.7 43.4 32.9 27.8 25.1 33.0 24.7 20.4 18.0 22.8 17.6 13.8 11.7 38.7 42.0 42.0 25.1 56.0 59.1 62.0 62.8 12.8 10.4 8.6 7.4 na na Koei Tecmo 3635-JP 3635-JP 21,755 SEK 172.1 21.4 18.7 17.3 16.5 21.7 18.0 15.1 13.8 20.6 16.6 14.3 12.9 30.3 31.9 33.0 16.5 31.8 34.5 34.8 35.1 6.6 5.7 5.0 4.5 7.4 7.3 Square Enix 9684-JP 9684-JP 38,862 SEK 326.0 22.9 19.6 18.0 16.9 12.2 9.7 8.3 7.4 9.9 8.1 7.2 6.3 10.9 12.2 13.0 16.9 13.5 14.6 15.1 16.7 1.3 1.2 1.1 1.1 2.1 1.1 9697-JP 9697-JP 22,762 SEK 213.2 21.3 18.9 17.5 15.6 16.5 14.4 12.8 11.1 13.0 11.5 10.3 8.6 18.8 20.7 21.6 15.6 23.8 26.1 26.9 29.8 3.1 3.0 2.8 2.6 3.7 12.7 Bandai 7832-JP 7832-JP 99,154 SEK 451.1 19.8 18.5 17.0 13.8 12.0 10.8 9.5 8.1 9.2 8.5 7.6 5.9 11.3 12.0 12.4 13.8 14.7 15.2 15.5 17.9 1.4 1.3 1.2 1.1 4.7 9.3 Nintendo 7974-JP 7974-JP 385,308 SEK 3,234.5 21.3 19.9 17.4 17.2 13.8 12.5 10.3 10.3 13.3 12.0 10.1 10.4 19.7 24.3 27.5 17.2 20.4 25.4 28.2 29.5 2.7 3.0 2.8 3.1 -3.2 8.1 9766-JP 9766-JP 58,245 SEK 430.7 19.2 18.3 17.0 14.5 11.0 10.2 9.1 7.3 8.9 8.3 7.4 6.0 19.7 20.6 21.3 14.5 24.5 25.2 26.2 28.4 2.2 2.1 1.9 1.7 7.0 13.1 Remedy REMEDY-FI REMEDY-FI 1,014 SEK 84.0 13.8 11.3 13.2 9.3 7.1 9.1 7.2 -5.0 26.6 29.7 13.2 -5.0 27.2 29.0 23.2 3.1 2.5 2.1 na na Peer average 58,245 31.4 21.0 18.1 16.5 23.1 14.4 11.9 10.7 19.6 11.8 10.0 9.3 22.1 24.4 29.7 16.5 27.3 30.2 35.3 35.1 6.4 8.3 3.7 3.7 11.1 17.3 THQ Nordic (ABGSCe) THQN.B-SE THQNB.ST 21,744 SEK 212 45.8 37.8 30.1 26.3 34.8 28.9 22.8 19.5 15.2 13.7 11.8 10.4 10.5 13.1 15.5 16.5 23.9 27.6 30.0 31.0 3.6 3.8 3.5 3.2 86.1 52.0 vs peer average 46% 80% 66% 60% 50% 100% 92% 82% -23% 16% 18% 12% -53% -47% -48% 0% -12% -9% -15% -12% -44% -54% -3% -12% 673% 201%

Mobile gaming peers Mcap Share price P/E (x) EV/EBIT (x) EV/EBITDA (x) EBIT-margin (%) EBITDA-margin (%) EV/Sales (x) CAGR '17-'21e Company Factset ticker Ticker (SEKm) Ccy SP 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e Sales EBIT

MAG Interactive MAGI-SE MAGI-SE 303 SEK 11.5 17.5 30.2 6.2 8.9 11.1 2.8 3.9 -6.7 9.5 13.1 6.3 20.5 1.2 0.7 0.6 na na Stillfront SF-SE SF-SE 5,315 SEK 221.0 16.8 18.8 15.8 14.3 11.5 12.3 10.0 8.6 8.1 9.2 7.5 6.4 23.6 27.2 28.3 14.3 33.2 36.5 37.7 37.4 2.7 3.3 2.8 2.4 12.3 13.4 Zynga ZNGA-US ZNGA-US 48,839 SEK 52.6 23.7 27.6 21.2 18.3 20.7 21.6 15.6 11.3 17.8 18.7 13.4 10.5 16.7 15.9 18.3 18.3 19.4 18.4 21.4 22.6 3.5 3.4 2.9 2.4 18.3 28.7 G5 Entertainment G5EN-SE G5EN-SE 880 SEK 98.0 8.6 7.5 6.4 4.9 6.3 5.0 3.8 2.4 3.8 2.7 2.2 1.5 10.0 9.9 10.7 4.9 16.5 18.3 18.4 20.2 0.6 0.5 0.4 0.3 na na Rovio Entertainment ROVIO-FI ROVIO-FI 5,883 SEK 74.4 12.6 18.4 13.4 12.5 6.3 11.1 7.0 6.0 4.0 8.3 6.1 5.4 10.5 12.2 17.3 12.5 16.7 16.4 20.0 19.8 0.7 1.4 1.2 1.1 na na Glu Mobile GLUU-US GLUU-US 15,088 SEK 104.7 30.6 31.4 22.2 17.2 9.8 12.2 15.2 17.2 10.5 12.7 16.1 18.4 na na Peer average 5,599 18.5 20.8 16.1 13.4 15.0 12.5 8.5 7.1 8.5 10.0 6.4 6.0 12.4 11.8 16.5 13.4 18.2 18.1 22.3 23.7 1.7 1.9 1.6 1.5 15.3 21.1 THQ Nordic (ABGSCe) THQN.B-SE THQNB.ST 21,744 SEK 212 45.8 37.8 30.1 26.3 34.8 28.9 22.8 19.5 15.2 13.7 11.8 10.4 10.5 13.1 15.5 16.5 23.9 27.6 30.0 31.0 3.6 3.8 3.5 3.2 86.1 52.0 vs peer average 148% 82% 87% 96% 132% 131% 168% 177% 78% 37% 84% 75% -16% 11% -6% 23% 31% 52% 34% 31% 111% 102% 124% 109% 464% 147%

Selected peers Mcap Share price P/E (x) EV/EBIT (x) EV/EBITDA (x) EBIT-margin (%) EBITDA-margin (%) EV/Sales (x) CAGR '17-'21e Company Factset ticker Ticker (SEKm) Ccy SP 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e 2018e 2019e 2020e 2021e Sales EBIT

Activision Blizzard ATVI-US ATVI-US 352,854 SEK 460.6 17.9 22.2 18.8 16.3 13.3 16.4 13.1 11.1 12.6 14.7 12.0 10.5 33.7 32.8 34.9 16.3 35.7 36.7 38.2 38.7 4.5 5.4 4.6 4.1 4.3 9.0 Electronic Arts EA-US EA-US 270,114 SEK 901.6 25.2 21.8 19.3 16.5 17.6 15.1 13.0 11.3 16.2 13.9 12.2 10.5 30.2 30.6 32.0 16.5 32.9 33.2 34.3 36.3 5.3 4.6 4.2 3.8 2.9 3.8 Take-Tw o TTWO-US TTWO-US 104,632 SEK 924.6 21.2 19.7 17.8 15.1 14.6 12.8 10.6 7.7 13.6 11.9 10.3 7.6 22.6 24.0 26.6 15.1 24.2 25.8 27.5 27.3 3.3 3.1 2.8 2.1 17.4 20.1 Ubisoft UBI-FR UBI-FR 99,005 SEK 887.4 31.2 27.5 23.3 23.0 19.1 15.3 10.4 9.6 8.3 19.8 22.3 24.3 43.6 44.2 44.6 4.6 4.3 3.7 na 28.1 CD Projekt CDR-PL CDR-PL 50,549 SEK 525.9 111.8 na 13.1 16.6 88.7 na 10.0 11.9 84.9 na 8.8 12.1 37.1 17.9 67.3 16.6 38.8 25.5 76.2 75.8 32.9 60.8 6.7 9.1 65.1 77.6 Paradox PDX-SE PDX-SE 15,597 SEK 147.7 43.4 32.9 27.8 25.1 33.0 24.7 20.4 18.0 22.8 17.6 13.8 11.7 38.7 42.0 42.0 25.1 56.0 59.1 62.0 62.8 12.8 10.4 8.6 7.4 na na Koei Tecmo 3635-JP 3635-JP 21,755 SEK 172.1 21.4 18.7 17.3 16.5 21.7 18.0 15.1 13.8 20.6 16.6 14.3 12.9 30.3 31.9 33.0 16.5 31.8 34.5 34.8 35.1 6.6 5.7 5.0 4.5 7.4 7.3 Square Enix 9684-JP 9684-JP 38,862 SEK 326.0 22.9 19.6 18.0 16.9 12.2 9.7 8.3 7.4 9.9 8.1 7.2 6.3 10.9 12.2 13.0 16.9 13.5 14.6 15.1 16.7 1.3 1.2 1.1 1.1 2.1 1.1 Capcom 9697-JP 9697-JP 22,762 SEK 213.2 21.3 18.9 17.5 15.6 16.5 14.4 12.8 11.1 13.0 11.5 10.3 8.6 18.8 20.7 21.6 15.6 23.8 26.1 26.9 29.8 3.1 3.0 2.8 2.6 3.7 12.7 Peer average 50,549 35.1 22.7 19.2 17.3 26.7 16.3 13.2 11.5 22.7 13.0 10.8 10.0 26.9 26.0 32.7 17.3 33.4 33.3 40.0 40.3 8.3 10.9 4.4 4.3 14.7 19.9 THQ Nordic (ABGSCe) THQN.B-SE THQNB.ST 21,744 SEK 212 45.8 37.8 30.1 26.3 34.8 28.9 22.8 19.5 15.2 13.7 11.8 10.4 10.5 13.1 15.5 16.5 23.9 27.6 30.0 31.0 3.6 3.8 3.5 3.2 86.1 52.0 vs peer average 30% 67% 57% 52% 30% 77% 73% 70% -33% 5% 9% 4% -61% -50% -53% -5% -28% -17% -25% -23% -56% -65% -19% -26% 486% 160%

Source: ABG Sundal Collier (only for THQ Nordic), FactSet consensus, company data

Give the size and focus of THQ, the best publicly traded Nordic peer is Paradox Interactive. Both have market caps in the SEK 15-20bn range and focus on games for the PC and Console segments. However, Paradox tends cater to a slightly different niche of the market: hard-core strategy games, fuelled by a DLC’s and expansion packs, and we believe that THQ’s target demographic is somewhat broader than Paradox’s.

13 Sydsvenskan: Malmö – Europe’s hottest gaming city? 2 May 2019 ABG Sundal Collier 15

THQ Nordic

THQ Nordic: EBIT growth estimate* (%) Selected peers: Average EBIT growth (%)

100% 98% 100%

80% 80% 73%

60% 49% 60% 43% 40% 38% 40% 40% 27% 20% 14% 20% 17% 18% 20% 12% 9% 0% 2015 2016 2017 2018 2019e 2020e 2021e 0% -2% -20% 2015 2016 2017 2018 2019e 2020e 2021e EBIT growth Selected peers average EBIT growth

Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, FactSet consensus, company data *ABGSCe adjustments for acquisitions and change to split year

THQ Nordic: EV/EBIT ’16-‘21e (x) Selected peers: EV/EBIT ‘19e-‘21e (x)

40.0X 40.0X 34.8 35.0X 35.0X 30.3 28.9 30.0X 30.0X Paradox 25.0X 23.5 22.8 25.0X

20.0X 20.0X Ubisoft Koei Tecmo EA Blizzard 15.0X Capcom 15.0X Take-Tw o CD Projekt 10.0X Square E 10.0X

5.0X 5.0X 0.0X 2016 2017 2018/19e 2019/20e 2020/21e 0.0X EV/EBIT 2019e 2020e 2021e Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, FactSet consensus, company data

THQ Nordic: EPS growth estimate* (%) Selected peers: Average EPS growth (%)

100% 100%

82% 76% 80% 80%

60% 60% 39% 40% 40% 26% 32% 20% 17% 20% 15% 19% 20% 16% 15% 8% 0% 7% 2015 2016 2017 2018 2019e 2020e 2021e -2% 0% -20% 2015 2016 2017 2018 2019e 2020e 2021e EPS growth Selected peers average EPS growth Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, FactSet consensus, company data *ABGSCe adjustments for acquisitions and change to split year

THQ Nordic: P/E ’16-‘21e (x) Selected peers: P/E ‘19e-‘21e (x)

50.0X 45.0X 45.1 45.8 45.0X 40.0X 37.8 40.0X 35.0X Paradox 35.0X 33.2 30.1 30.0X 30.0X Ubisoft 25.0X EA Blizzard 25.0X Square Take-Tw o Koei 20.0X CD Projekt Capcom 20.0X

15.0X 15.0X

10.0X 10.0X 5.0X 5.0X 0.0X 2016 2017 2018/19e 2019/20e 2020/21e 0.0X P/E 2019e 2020e 2021e Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, FactSet consensus, company data

2 May 2019 ABG Sundal Collier 16

THQ Nordic

EV/sales vs. EBIT margin selected peers EV/EBIT vs. EBIT margin selected peers

14x 35x

Paradox THQ Nordic 12x 30x

10x 25x Paradox

Ubisoft 8x Koei 20x Koei

6x 15x Capcom EA EA Blizzard

Ubisoft '19e EV/EBIT EV/Sales '19e EV/Sales THQ Nordic Blizzard 4x 10x Take Two Capcom Square Enix 2x Take Two 5x Square Enix

0x 0x 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% EBIT margin '19e EBIT margin '19e

Source: ABG Sundal Collier (for THQ Nordic), FactSet, company data Source: ABG Sundal Collier (for THQ Nordic), FactSet, company data

THQ Nordic: EV/EBITDA NTM THQ Nordic: EV/EBIT NTM

25x 35x

30x 20x

25x 15x 21.7

11.3 20x 11.3 18.7

10x NTM EV/EBIT NTM

NTM EV/EBITDA NTM 15x

5x 10x

0x 5x 2017 2018 2019 2017 2018 2019

EV/EBITDA NTM Average EV/EBITDA NTM EV/EBIT NTM Average EV/EBIT NTM Source: ABG Sundal Collier, FactSet, company data Source: ABG Sundal Collier, FactSet, company data

THQ Nordic: P/E NTM THQ Nordic & OMXSPI: P/E NTM

45x 45x

40x 40x

35x 35x 30x 30x 27.6 27.6 25x 25x

24.0 20x

NTM P/E NTM NTM P/E NTM 20x 14.9 15x 15x 10x

10x 5x

5x 0x 2017 2018 2019 2017 2018 2019

P/E NTM Average P/E NTM THQ OMXSPI

Source: ABG Sundal Collier, FactSet, company data Source: ABG Sundal Collier, FactSet, company data

2 May 2019 ABG Sundal Collier 17

THQ Nordic

Income Statement (SEKm) Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019e Sales 86 85 255 633 837 1,273 1,381 1,550 COGS -24 -30 -69 -320 -466 -895 -838 -902 Gross profit 61 55 186 313 371 377 542 648 Other operating items -22 -20 -30 -87 -165 -163 -216 -264 EBITDA 40 35 156 226 207 215 326 384 Depreciation on tangibles 0 0 0 0 0 0 0 0 Depreciation on intangibles -9 -11 -54 -119 -154 -124 -174 -194 EBITA 30 24 102 107 53 91 152 191 Goodwill impairment charges 0 0 0 0 0 0 0 0 Other impairment and amortisation 0 0 0 0 0 0 0 0 EBIT 30 24 102 107 53 91 152 191 Interest Net -0 -1 -5 -9 -4 -3 -4 -5 Other financial items 0 0 0 0 0 0 0 0 Associated income 0 0 0 0 0 0 0 0 Other EO items 0 0 0 0 0 0 0 0 Pretax profit 30 23 97 98 49 88 148 185 Tax -7 -4 -24 -17 -15 -23 -34 -41 Net profit 23 19 73 81 33 65 114 145 Minority interest 0 0 0 0 0 0 0 0 Net profit discontinued 0 0 0 0 0 0 0 0 Net profit to shareholders 23 19 73 81 33 65 114 145 EPS 0.32 0.24 0.93 1.02 0.38 0.74 1.32 1.68 EPS Adj 0.32 0.24 0.93 1.02 0.38 0.74 1.32 1.68 Total extraordinary items after tax 0 0 0 0 0 0 0 0 Tax rate (%) 22.6 18.8 24.4 17.3 31.2 25.7 23.1 22.0 Gross margin (%) 71.6 64.9 72.9 49.5 44.4 29.7 39.3 41.8 EBITDA margin (%) 46.4 40.8 61.2 35.7 24.7 16.9 23.6 24.8 EBITA margin (%) 35.5 28.4 39.9 16.9 6.3 7.1 11.0 12.3 EBIT margin (%) 35.5 28.4 39.9 16.9 6.3 7.1 11.0 12.3 Pretax margin (%) 35.1 27.7 38.0 15.5 5.8 6.9 10.8 12.0 Net margin (%) 27.1 22.5 28.7 12.8 4.0 5.1 8.3 9.3 Growth rates Y/Y Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019e Sales growth (%) 62.2 8.8 99.3 672.8 878.8 1,403.1 440.6 144.9 EBITDA growth (%) 71.2 36.4 157.4 439.0 421.1 521.3 108.6 70.2 EBIT growth (%) 113.3 50.3 101.5 236.6 73.0 278.1 49.1 77.8 Net profit growth (%) 119.5 50.1 93.2 244.4 44.1 241.9 55.6 78.3 EPS growth (%) 119.5 50.1 93.2 244.4 44.1 241.9 55.6 78.3 Adj earnings numbers Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019e EBITDA Adj 40 35 156 226 207 215 326 384 EBITDA Adj margin (%) 46.4 40.8 61.2 35.7 24.7 16.9 23.6 24.8 EBITA Adj 30 24 102 107 53 91 152 191 EBITA Adj margin (%) 35.5 28.4 39.9 16.9 6.3 7.1 11.0 12.3 EBIT Adj 30 24 102 107 53 91 152 191 EBIT Adj margin (%) 35.5 28.4 39.9 16.9 6.3 7.1 11.0 12.3 Pretax profit Adj 30 23 97 98 49 88 148 185 Net profit Adj 23 19 73 81 33 65 114 145 Net profit to shareholders Adj 23 19 73 81 33 65 114 145 Net Adj margin (%) 27.1 22.5 28.7 12.8 4.0 5.1 8.3 9.3 Source: ABG Sundal Collier, Company data

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Income Statement (SEKm) na na na 2014 2015 2016 2017 2018e 2019e 2020e Sales na na na 178 213 302 508 5,674 5,390 5,670 COGS na na na -58 -70 -119 -148 -3,421 -3,088 -3,143 Gross profit na na na 121 143 183 360 2,252 2,302 2,527 Other operating items na na na -25 -38 -51 -87 -894 -816 -827 EBITDA na na na 95 105 132 273 1,358 1,486 1,700 Depreciation on tangibles na na na 0 0 0 0 0 0 0 Depreciation on intangibles na na na -27 -38 -37 -84 -765 -782 -822 EBITA na na na 68 67 95 188 593 704 878 Goodwill impairment charges na na na 0 0 0 0 0 0 0 Other impairment and amortisation na na na 0 0 0 0 0 0 0 EBIT na na na 68 67 95 188 593 704 878 Interest Net na na na -1 -1 -2 -6 -25 -24 -24 Other financial items na na na 0 0 0 0 0 0 0 Associated income na na na 0 0 0 0 0 0 0 Other EO items na na na 0 0 0 0 0 0 0 Pretax profit na na na 67 66 93 182 568 680 854 Tax na na na -15 -14 -21 -43 -130 -150 -188 Net profit na na na 52 52 72 139 438 531 666 Minority interest na na na 0 -1 0 0 0 0 0 Net profit discontinued na na na 0 0 0 0 0 0 0 Net profit to shareholders na na na 52 51 72 139 438 531 666 EPS na na na 0.87 0.85 1.00 1.76 4.79 5.79 7.27 EPS Adj na na na 0.87 0.85 1.00 1.76 4.79 5.79 7.27 Total extraordinary items after tax na na na 0 0 0 0 0 0 0 Tax rate (%) na na na 22.4 21.6 22.6 23.5 22.8 22.0 22.0 Gross margin (%) na na na 67.7 67.1 60.6 70.9 39.7 42.7 44.6 EBITDA margin (%) na na na 53.5 49.4 43.8 53.7 23.9 27.6 30.0 EBITA margin (%) na na na 38.3 31.3 31.5 37.1 10.5 13.1 15.5 EBIT margin (%) na na na 38.3 31.3 31.5 37.1 10.5 13.1 15.5 Pretax margin (%) na na na 37.7 31.0 30.8 35.9 10.0 12.6 15.1 Net margin (%) na na na 29.3 24.3 23.8 27.4 7.7 9.8 11.7 Growth rates Y/Y na na na 2014 2015 2016 2017 2018e 2019e 2020e Sales growth (%) na na na na 19.6 41.8 68.1 1,017.9 -5.0 5.2 EBITDA growth (%) na na na na 10.4 26.0 106.0 398.3 9.4 14.4 EBIT growth (%) na na na na -2.3 42.7 98.1 215.2 18.6 24.7 Net profit growth (%) na na na na -0.7 39.1 93.4 214.9 21.1 25.5 EPS growth (%) na na na na -1.7 17.0 75.8 172.5 21.1 25.5 Profitability na na na 2014 2015 2016 2017 2018e 2019e 2020e ROE (%) na na na na 71.7 33.5 19.6 18.6 13.6 14.8 ROE Adj (%) na na na na 71.7 33.5 19.6 18.6 13.6 14.8 ROCE (%) na na na na 122.4 74.5 55.9 26.5 17.1 19.9 ROCE Adj(%) na na na na 122.4 74.5 55.9 26.5 17.1 19.9 ROIC (%) na na na na 96.0 57.7 42.7 20.4 13.4 15.5 ROIC Adj (%) na na na na 96.0 57.7 42.7 20.4 13.4 15.5 Adj earnings numbers na na na 2014 2015 2016 2017 2018e 2019e 2020e EBITDA Adj na na na 95 105 132 273 1,358 1,486 1,700 EBITDA Adj margin (%) na na na 53.5 49.4 43.8 53.7 23.9 27.6 30.0 EBITA Adj na na na 68 67 95 188 593 704 878 EBITA Adj margin (%) na na na 38.3 31.3 31.5 37.1 10.5 13.1 15.5 EBIT Adj na na na 68 67 95 188 593 704 878 EBIT Adj margin (%) na na na 38.3 31.3 31.5 37.1 10.5 13.1 15.5 Pretax profit Adj na na na 67 66 93 182 568 680 854 Net profit Adj na na na 52 52 72 139 438 531 666 Net profit to shareholders Adj na na na 52 51 72 139 438 531 666 Net Adj margin (%) na na na 29.3 24.3 23.8 27.4 7.7 9.8 11.7 Source: ABG Sundal Collier, Company data

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Cash Flow Statement (SEKm) na na na 2014 2015 2016 2017 2018e 2019e 2020e EBITDA na na na 95 105 132 273 1,358 1,486 1,700 Net financial items na na na -1 -1 -2 -6 -25 -24 -24 Paid tax na na na -15 -14 -21 -43 -130 -150 -188 Non-cash items na na na -52 13 -13 -96 -117 0 0 Cash flow before change in WC na na na 27 103 96 128 1,087 1,313 1,488 Change in WC na na na na 7 3 51 -529 78 -12 Operating cash flow na na na 60 110 99 179 558 1,391 1,476 CAPEX tangible fixed assets na na na 0 0 0 0 0 0 0 CAPEX intangible fixed assets na na na -39 -69 -160 -708 -2,197 -1,097 -1,167 Acquisitions and disposals na na na 0 0 0 0 0 0 0 Free cash flow na na na 22 41 -60 -529 -1,638 294 309 Dividend paid na na na 0 0 0 0 0 0 0 Share issues and buybacks na na na 0 0 0 0 0 0 0 Other non cash items na na na na -39 199 962 705 0 0 Decrease in net IB debt na na na na 2 138 432 -934 294 309 Balance Sheet (SEKm) na na na 2014 2015 2016 2017 2018e 2019e 2020e Goodwill na na na 0 0 0 0 0 0 0 Indefinite intangible assets na na na 0 0 0 0 0 0 0 Definite intangible assets na na na 75 104 229 571 3,407 3,722 4,067 Tangible fixed assets na na na 1 2 4 8 152 152 152 Other fixed assets na na na 3 0 0 3 211 211 211 Fixed assets na na na 79 106 232 582 3,770 4,085 4,429 Inventories na na na 0 0 0 0 0 0 0 Receivables na na na 35 44 65 120 2,015 1,514 1,559 Other current assets na na na 0 0 0 0 0 0 0 Cash and liquid assets na na na 18 26 167 627 630 924 1,233 Total assets na na na 131 175 465 1,329 6,415 6,522 7,221 Shareholders equity na na na 59 84 345 1,073 3,648 4,179 4,845 Minority na na na 0 0 0 0 0 0 0 Total equity na na na 59 84 345 1,073 3,648 4,179 4,845 Long-term debt na na na 5 8 11 41 1,186 1,186 1,186 Pension debt na na na 0 0 0 0 0 0 0 Convertible debt na na na 0 0 0 0 0 0 0 Deferred tax na na na 0 0 0 0 0 0 0 Other long-term liabilities na na na 0 0 0 0 0 0 0 Short-term debt na na na 0 0 0 0 0 0 0 Accounts payable na na na 68 84 108 215 1,581 1,158 1,191 Other current liabilities na na na 0 0 0 0 0 0 0 Total liabilities and equity na na na 131 175 465 1,329 6,415 6,522 7,221 Net IB debt na na na -16 -18 -156 -589 345 51 -258 Net IB debt excl. pension debt na na na -16 -18 -156 -589 345 51 -258 Capital invested na na na 43 66 189 485 3,993 4,230 4,587 Working capital na na na -33 -40 -43 -95 434 356 369 EV breakdown na na na 2014 2015 2016 2017 2018e 2019e 2020e Market cap. diluted (m) na na na na na 2,391 6,279 20,072 20,072 20,072 Net IB debt Adj na na na -13 -18 -156 -586 556 262 -47 Market value of minority na na na 0 0 0 0 0 0 0 Reversal of shares and participations na na na 0 0 0 0 0 0 0 Reversal of conv. debt assumed equity na na na 0 0 0 0 0 0 0 EV na na na na na 2,235 5,694 20,627 20,334 20,025 Capital efficiency (%) na na na 2014 2015 2016 2017 2018e 2019e 2020e Total assets turnover (%) na na na na 138.9 94.3 56.6 146.5 83.3 82.5 Capital invested turnover (%) na na na na 391.4 236.7 150.7 253.4 131.1 128.6 Capital employed turnover (%) na na na na 391.4 236.7 150.7 253.4 131.1 128.6 Inventories/sales (%) na na na na 0 0 0 0 0 0 Customer advances/sales (%) na na na na 0 0 0 0 0 0 Payables/sales (%) na na na na 35.6 31.8 31.8 15.8 25.4 20.7 Working capital/sales (%) na na na na -17.2 -13.8 -13.6 3.0 7.3 6.4 Financial risk and debt service na na na 2014 2015 2016 2017 2018e 2019e 2020e Net debt/equity (%) na na na -27.4 -21.4 -45.3 -54.8 9.5 1.2 -5.3 Net debt/market cap (%) na na na na na -7.3 -12.9 2.3 0.3 -1.3 Equity ratio (%) na na na 44.8 48.0 74.2 80.8 56.9 64.1 67.1 Net IB debt adj./equity (%) na na na -22.3 -21.4 -45.2 -54.6 15.2 6.3 -1.0 Current ratio (%) na na na 77.3 82.6 214.5 347.7 167.3 210.5 234.5 EBITDA/net interest (%) na na na 9,520.0 17,716.7 6,246.8 4,405.6 5,358.2 6,313.4 7,168.4 Net IB debt/EBITDA (%) na na na -16.9 -17.2 -118.0 -215.9 25.4 3.5 -15.2 Interest cover (%) na na na 6,810.0 11,225.3 4,484.0 3,041.4 2,340.0 2,990.1 3,701.4 Source: ABG Sundal Collier, Company data

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Valuation and Ratios (SEKm) na na na 2014 2015 2016 2017 2018e 2019e 2020e Shares outstanding adj. na na na 60 60 72 79 92 92 92 Fully diluted shares Adj na na na 60 60 72 79 92 92 92 EPS na na na 0.87 0.85 1.00 1.76 4.79 5.79 7.27 Dividend per share Adj na na na 0 0 0 0 0 0 0 EPS Adj na na na 0.87 0.85 1.00 1.76 4.79 5.79 7.27 BVPS na na na 0.98 1.40 4.79 13.54 39.84 45.63 52.91 BVPS Adj na na na -0.27 -0.34 1.62 6.34 2.63 4.99 8.50 Net IB debt / share na na na -0.3 -0.3 -2.2 -7.4 3.8 0.6 -2.8 Share price na na na na na 33.20 79.25 219.20 219.20 219.20 Market cap. (m) na na na na na 2,391 6,279 20,072 20,072 20,072 Valuation na na na 2014 2015 2016 2017 2018e 2019e 2020e P/E na na na na na 33.2 45.1 45.8 37.8 30.1 EV/sales na na na na na 7.41 11.22 3.64 3.77 3.53 EV/EBITDA na na na na na 16.9 20.9 15.2 13.7 11.8 EV/EBITA na na na na na 23.5 30.3 34.8 28.9 22.8 EV/EBIT na na na na na 23.5 30.3 34.8 28.9 22.8 Dividend yield (%) na na na na na 0 0 0 0 0 FCF yield (%) na na na na na -2.5 -8.4 -8.2 1.5 1.5 P/BVPS na na na na na 6.93 5.85 5.50 4.80 4.14 P/BVPS Adj na na na na na 20.55 12.50 83.36 43.96 25.80 P/E Adj na na na na na 33.2 45.1 45.8 37.8 30.1 EV/EBITDA Adj na na na na na 16.9 20.9 15.2 13.7 11.8 EV/EBITA Adj na na na na na 23.5 30.3 34.8 28.9 22.8 EV/EBIT Adj na na na na na 23.5 30.3 34.8 28.9 22.8 EV/cap. employed na na na na na 11.8 11.7 5.2 4.8 4.4 Investment ratios na na na 2014 2015 2016 2017 2018e 2019e 2020e Capex/sales na na na 21.9 32.2 52.9 139.6 38.7 20.4 20.6 Capex/depreciation na na na 143.5 178.0 427.6 839.2 287.1 140.2 141.9 Capex tangibles/tangible fixed assets na na na 0 0 0 0 0 0 0 Capex intangibles/definite intangibles na na na 52.0 65.6 69.8 124.0 64.5 29.5 28.7 Depreciation on intangibles/definite intangibles na na na 36.2 36.8 16.3 14.8 22.5 21.0 20.2 Depreciation on tangibles/tangibles na na na 0 0 0 0 0 0 0 Source: ABG Sundal Collier, Company data

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Analyst certification I/We, Erik Moberg, Jesper Birch-Jensen, Stefan Knutsson, the author(s) of this report, certify that not withstanding the existence of any such potential conflicts of interests referred to below, the views expressed in this report accurately reflect my/our personal view about the companies and securities covered in this report.

Analyst valuation methods ABG Sundal Collier analysts may publish valuation ranges for stocks covered under Company Sponsored Research. These valuation ranges rely on various valuation methods. One of the most frequently used methods is the valuation of a company by calculation of that company's discounted cash flow (DCF). Another valuation method is the analysis of a company's return on capital employed relative to its cost of capital. Finally, the analysts may analyse various valuation multiples (e.g. the P/E multiples and the EV/EBITDA multiples) relative to global industry peers. In special cases, particularly for property companies and investment companies, the ratio of price to net asset value is considered. Valuation ranges may be changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of a company's assets changes (in the cases of investment companies, property companies or insurance companies) or when factors impacting the required rate of return change.

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ABG Sundal Collier has undertaken a contractual obligation to issue this report and receives predetermined compensation from the company

covered in this report. w mo

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ABG Sundal Collier is not aware of any other actual, material conflicts of interest of the analyst or ABG Sundal Collier of which the analyst

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Production of report: 02/05/2019 08:42 CET. All prices are as of market close on 30 April, 2019 unless otherwise noted.

Disclaimer This document has been prepared by ABG Sundal Collier which is the marketing name referring to all or any of ABG Sundal Colli er ASA, ABG Sundal Collier AB or ABG Sundal Collier Partners LLP and any of their affiliated or associated companies and their directors, officers, representatives and employees.

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transactions in any securities referred to herein should contact ABG Sundal Collier Inc., not its affiliates. Further information on the securities referred to herein may be obtained from ABG Sundal Collier Inc., on request.

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ABGSC Research Department

Joint Global Head of Research John Olaisen +47 22 01 61 87 Christer Linde +46 8 566 286 90

Strategy Metals & Mining Christer Linde, Quant/Technical +46 8 566 286 90 Martin Melbye +47 22 01 61 37 Derek Laliberte +46 8 566 286 78 Bengt Jonassen +47 22 01 60 98 Bengt Jonassen +47 22 01 60 98 Petter Nyström +47 22 01 61 35

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