Equity Research - 24 June 2020 19:10 CET
Embracer Group Reason: Estimate changes Company sponsored research End of quarter game sales update Not rated
Q1’20/21e: Sales SEK 1,648m, adj. EBIT SEK 431m Estimate changes (%) Current FY adj. EBIT up 9.7% on strong new game sales 2020e 2021e 2022e SOTP fair value of SEK 104-141 (93-125) per share Sales 4.2% 0.0% 0.0% EBIT (rep) 54.5% 0.0% 0.0% Estimates up on strong contribution from Games segment EPS (rep) 48.3% 0.0% 0.0% Our research suggests that Embracer will enjoy both strong sales from Source: ABG Sundal Collier its new releases and back catalogue in Q1’20/21e. We therefore raise Share price (SEK) 24/06/2020 1 2 5 .0 our contribution from the Games segment by ~10%, from SEK 1,135m to SEK 1,248m, and it now comprises 75.7% of net sales in Q1e, the IT, Sweden highest since the Koch Media acquisition in ’18. Ultimately, this leads to EMBRACB.ST /EMBRACB ST Q1e sales of SEK 1,648m, a gross margin of 56.3%, EBITDA of SEK 659m and adj. EBIT of SEK 431m. MCap (SEKm) 46,544 MCap (EURm) 4,429.9 Q1’20/21e revisions: Deep Silver, Coffee Stain, Saber Net debt (EURm) -146 Following our end of quarter game sales update, we have adjusted our contribution from the Games segment in Q1’20/21e. We keep our top- No. of shares (m) 372 line estimate for THQ Nordic at SEK 350m, as Desperados III has Free float (%) 60.0 performed slightly below our estimates and SpongeBob Rehydrated will Av. daily volume (k) 942.2 only contribute for one week. However, we increase our Q1 estimates for Deep Silver from SEK 450m to SEK 515m, on the back of a stronger Next event Q1 report: 13 Aug than expected performance by Saints Row the Third Remastered and continued solid back catalogue sales from Metro Exodus. For Coffee Performance Stain, we increase our revenue estimate from SEK 85m to SEK 108m, as 800 Satisfactory on Steam has performed well above our estimates, further 700 fuelled by a strong launch for Deep Rock Galactic. We also increase our 600 estimates for Saber Interactive from SEK 250m to SEK 275m, as World 500 400 War Z GOTY Edition performed above our expectations. We keep our 300 SEK 400m estimate for Partner Publishing intact. 200 100
EV/adj. EBIT of 25.2x-16.1x, SOTP of SEK 104-141 per share 0
Apr 18 Apr 18 Oct 19 Apr 19 Oct 20 Apr Oct 17 Oct
Jun 17 Jun 18 Jun Jun 19 Jun
Feb 18 Feb 20 Feb Feb 19 Feb
Dec 17 Dec 18 Aug 18 Dec 19 Aug 19 Dec We have updated our three SOTP valuations, based on our current FY 17 Aug EBITDA estimates, which now suggest a fair value range of SEK 104- Embracer Group OMX STH PI 141 per share when we apply a range of relevant peer multiples. The 1m 3m 12m increase is due to 1) our increased current FY EBITDA estimates and 2) Absolute (%) 4.5 47.1 62.3 because we think that player engagement will have increased OMX STH PI (%) 8.0 36.5 5.9 permanently in the new steady state following COVID-19. In addition, we Source: FactSet find that Embracer is trading at an EV/adj. EBIT of 25.2x-16.1x for 20/21e-22/23e based on our new estimates. Lead analyst: Jesper Birch-Jensen Stefan Knutsson 2020e 2021e 2022e SEKm 2018 2019 2020e 2021e 2022e P/E (x) -431.6 215.7 112.4 Sales 5,754 5,249 7,533 9,035 9,545 P/E adj (x) -431.6 215.7 112.4 EBITDA 1,593 1,821 2,673 3,392 3,820 P/BVPS (x) 3.79 3.72 3.60 EBITDA margin (%) 27.7 34.7 35.5 37.5 40.0 EV/EBITDA (x) 16.9 13.0 11.3 EBIT adj 575 345 -81 312 580 EV/EBIT adj (x) -558.8 141.3 74.7 EBIT adj margin (%) 10.0 6.6 -1.1 3.4 6.1 EV/sales (x) 6.00 4.87 4.53 Pretax profit 545 409 -105 292 560 ROE adj (%) -1.1 1.7 3.3 EPS rep 4.22 0.91 -0.29 0.58 1.11 EPS adj 4.22 0.91 -0.29 0.58 1.11 Dividend yield (%) 0 0 0 FCF yield (%) 1.2 2.5 1.6 Sales growth (%) 1,033.7 -8.8 43.5 19.9 5.6 Lease adj. FCF yld (%) 1.2 2.5 1.6 EPS growth (%) 140.4 -78.5 -131.9 300.1 91.9 Net IB debt/EBITDA -0.6 -0.8 -0.9 Source: ABG Sundal Collier, Company data Lease adj. ND/EBITDA -0.6 -0.8 -0.9 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.
Embracer Group
Opportunities Risks A large part of the IP portfolio is still not generating any Despite Embracer Group’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, Embracer Group is Moreover, disappointing releases or reviews could dent well suited for future value-adding acquisitions, which end-customer enthusiasm and hurt the company's could mean securing more IPs and portfolio expansion. finances, especially during the launch period. Delays in The acquisition of Koch Media further adds new planned and ongoing gaming projects could adversely distribution/publishing channels, an opportunity to reach affect the group’s profitability. Acquiring established but further and wider with the current portfolio and expected temporarily underperforming gaming brands and gradually pipeline, aligning them for additional growth. improving them increases the potential risk of performing below market expectations.
Games segment breakdown, 2019, SEKm Business area breakdown, 2019, SEKm
3,000 2,500
2,500 2,000
2,000 1,500
1,500 1,000 1,000 500 500 0 0 THQ Nordic Deep Silver Coffee Stain 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, 2020e, SEK EPS estimate changes, 2021e, SEK
3.0 3.0
2.5 2.5 2.0
1.5 2.0 1.0
0.5 1.5
0.0 1.0 -0.5
-1.0 0.5
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 Embracer Group acquires, develops and publishes PC and 2,500 200 console games for the global gaming market. Its core 150 business model consists of acquiring established gaming 2,000 brands and gradually improving them. Much of Embracer 100 Group’s soul stems from entrepreneur, founder and CEO 1,500 Lars Wingefors, who at the age of 16 founded Nordic 50 Games, which we today associate with Embracer Group. 1,000 0 The game changer came in 2013 when most of today’s brand portfolio was acquired from THQ Inc’s insolvency. At 500 -50 the start of 2018, the company acquired Koch Media, which focuses on game development and gives Embracer 0 -100 Group a larger publishing business. quarterly sales quarterly adj. EBIT Source: ABG Sundal Collier, Company data
24 June 2020 ABG Sundal Collier 2
Embracer Group
Estimate changes
In terms of Q1’20/21e top-line estimate changes, we’ve elected to keep our THQ Nordic estimate of SEK 350m, seeing as Desperados III has performed slightly below our expectations in terms of copies sold. For Deep Silver, we increase our top-line estimate from SEK 450m to SEK 515m, mainly due to the stronger than expected performance of Saint’s Row the Third Remastered. For Coffee Stain, we increase our top-line estimate from SEK 85m to SEK 108m, due to the very strong performance of Satisfactory on Steam, and Deep Rock Galactic on Steam and Xbox One. Lastly, we increase our revenue estimate for Saber Interactive from SEK 250m to SEK 275m, as the Game of the Year Edition of World War Z has performed above our expectations.
ABGSC estimate changes, 20/21e-22/23e, (SEKm) Estimate changes (SEKm) Old forecast New forecast Change Net sales 2020/21e 2021/22e 2022/23e 2020/21e 2021/22e 2022/23e 2020/21e 2021/22e 2022/23e Games THQ Nordic 1500.0 1650.0 1750 1550.0 1650.0 1750.0 3.3% 0.0% 0.0% Games Deep Silver 2000.0 3200.0 3300 2190.0 3200.0 3300.0 9.5% 0.0% 0.0% Games Coffee Stain 280.0 310.0 330 317.5 310.0 330.0 13.4% 0.0% 0.0% Games Saber Interactive 950.0 1075.0 1215 975.0 1075.0 1215.0 2.6% 0.0% 0.0% Games Total 4730.0 6235.0 6595 5032.5 6235.0 6595.0 6.4% 0.0% 0.0% Partner Publishing/Film 2500.0 2800.0 2950 2500.0 2800.0 2950.0 0.0% 0.0% 0.0% Group 7230.0 9035.0 9545 7532.5 9035.0 9545.0 4.2% 0.0% 0.0%
COGS -3433.0 -4122.7 -4150.0 -3558.3 -4122.7 -4150.0 3.7% 0.0% 0.0% Gross profit 3797.1 4912.3 5395.0 3974.2 4912.3 5395.0 4.7% 0.0% 0.0%
Capitalized costs & other income 1398.6 1687.3 2052.2 1418.0 1687.3 2052.2 1.4% 0.0% 0.0% Operating costs -2679.9 -3207.4 -3627.1 -2719.4 -3207.4 -3627.1 1.5% 0.0% 0.0%
EBITDA 2515.8 3392.1 3820.0 2672.8 3392.1 3820.0 6.2% 0.0% 0.0%
Depreciation & amortization -2693.6 -3080.5 -3240.5 -2753.6 -3080.5 -3240.5 2.2% 0.0% 0.0%
Adj. EBIT 1626.8 2251.6 2669.5 1783.8 2251.6 2669.5 9.7% 0.0% 0.0% EBIT -177.9 311.6 579.5 -80.9 311.6 579.5 - 0.0% 0.0%
Net financials -24.0 -20.0 -20.0 -24.0 -20.0 -20.0 0.0% 0.0% 0.0% Taxes -6.9 -75.8 -145.5 -3.0 -75.8 -145.5 -56.7% 0.0% 0.0% Net profit -208.8 215.8 414.1 -107.8 215.8 414.1 - 0.0% 0.0%
EPS Basic (SEK) -0.56 0.58 1.11 -0.29 0.58 1.11 - 0.0% 0.0% EPS Adj. (SEK) 4.29 5.79 6.72 4.72 5.79 6.72 10.1% 0.0% 0.0% Net sales grow th y-o-y 2020/21e 2021/22e 2022/23e 2020/21e 2021/22e 2022/23e 2020/21e 2021/22e 2022/23e Games THQ Nordic 29.9% 10.0% 6.1% 34.2% 6.5% 6.1% 4.3 pp -3.5 pp 0.0 pp Games Deep Silver 11.3% 60.0% 3.1% 21.9% 46.1% 3.1% 10.6 pp -13.9 pp 0.0 pp Games Coffee Stain 13.9% 10.7% 6.5% 29.2% -2.4% 6.5% 15.3 pp -13.1 pp 0.0 pp Games Saber Interactive -5.0% 13.2% 13.0% -2.5% 10.3% 13.0% 2.5 pp -2.9 pp 0.0 pp Games Total 48.0% 31.8% 5.8% 57.4% 23.9% 5.8% 9.5 pp -7.9 pp 0.0 pp Partner Publishing/Film 21.7% 12.0% 5.4% 21.7% 12.0% 5.4% 0.0 pp 0.0 pp 0.0 pp Group 37.7% 25.0% 5.6% 43.5% 19.9% 5.6% 5.8 pp -5.0 pp 0.0 pp
Margins 2020/21e 2021/22e 2022/23e 2020/21e 2021/22e 2022/23e 2020/21e 2021/22e 2022/23e Gross margin 52.5% 54.4% 56.5% 52.8% 54.4% 56.5% 0.2 pp 0.0 pp 0.0 pp EBITDA margin 34.8% 37.5% 40.0% 35.5% 37.5% 40.0% 0.7 pp 0.0 pp 0.0 pp Adj. EBIT margin 22.5% 24.9% 28.0% 23.7% 24.9% 28.0% 1.2 pp 0.0 pp 0.0 pp EBIT margin -2.5% 3.4% 6.1% -1.1% 3.4% 6.1% 1.4 pp 0.0 pp 0.0 pp Net margin -2.9% 2.4% 4.3% -1.4% 2.4% 4.3% 1.5 pp 0.0 pp 0.0 pp
Source: ABG Sundal Collier, company data
24 June 2020 ABG Sundal Collier 3
Embracer Group
Pipeline estimates
The key to understanding financial estimates for Embracer lies in evaluating the company’s video game pipeline. This is true for its video game development and publishing segments, Deep Silver, THQ Nordic, Coffee Stain, Saber Interactive and for its Partner Publishing division, which in turn is based on its partners’ – Square Enix and Capcom to name two – video game pipelines.
Since our latest update we’ve added a few titles to our pipeline estimates:
For Deep Silver, we’ve added Windbound, which is being developed by 5 Lives Studios, published by Deep Silver and set to be released on 28 August.
For THQ Nordic, we’ve added the recently leaked Kingdoms of Amalur: Re- Reckoning, which is targeted to be released 18 August1 on current generation consoles (XONE & PS4) and PC. Furthermore, we’ve added the newly announced DLC “Subject 2923” for Remnant: From the Ashes, set to be released on 20 August2.
We would also like to highlight that it was recently announced that Marvel’s Avengers – for which Koch Media will handle physical distribution in certain countries – will also be released on next generation consoles when they’re launched3.
Estimates release dates for select titles Pipeline estimates - ABGSC
Apr-Jun '20 Jul-Sep '20 Oct-Dec '20 Jan-Mar '21 Apr '21-Mar '22 Games Segment Q1'20/21e Q2'20/21e Q3'20/21e Q4'20/21e 2021/2022e Dead Island 2 Deep Silver X Saints Row V Deep Silver X Iron Harvest Deep Silver X MotoGP20 Deep Silver X Saints Row 3 Remastered Deep Silver X Outw ard - The Soroboreans (DLC) Deep Silver X Wasteland 3 Deep Silver X Windbound Deep Silver X Chorus Deep Silver X SpongeBob SquarePants: Battle for Bikini Bottom THQ Nordic X Biomutant THQ Nordic X Desperados 3 THQ Nordic X Destroy All Humans THQ Nordic X Remnant: From the Ashes - Sw amps of Corsus (DLC) THQ Nordic X Remnant: From the Ashes - Subject 2923 (DLC) THQ Nordic X Kingdoms of Amalur: Re-Reckoning THQ Nordic X Satisfactory (Steam release) Coffee Stain X Huntdow n Coffee Stain X Deep Rock Galactic (Full release) Coffee Stain X World War Z (Game of the Year Edition) Sabre Interactive X Snow Runner Sabre Interactive X WWE Battlegrounds Sabre Interactive X
Partner Publishing Segment Q1'20/21e Q2'20/21e Q3'20/21e Q4'20/21e 2021/2022e Final Fantasy VII Remake Partner Publishing X Marvel's Avengers (PS4 & Xbox One) Partner Publishing X Marvel's Avengers (PS5 & Xbox Series X) Partner Publishing X Dying Light 2 Partner Publishing X Resident Evil 3 Remake Partner Publishing X F1 2020 Partner Publishing X
Source: ABG Sundal Collier, company data
1 https://www.gamespot.com/articles/kingdoms-of-amalur-rereckoning-preorder-guide-for-/1100-6478038/ 2 https://www.windowscentral.com/remnant-ashes-subject-2923-dlc-hits-august-answers-remaining-questions 3 https://nordic.ign.com/news/37511/marvels-avengers-confirmed-for-ps5-xbox-series-x-current-gen-players-can- upgrade-to-next-gen-version 24 June 2020 ABG Sundal Collier 4
Embracer Group
New releases and back catalogue
Below we highlight current quarter game sales estimates for a few key titles, which includes both new games like Desperados III, Saint’s Row the Third Remastered and Deep Rock Galactic, but also back catalogue titles like Metro Exodus and Kingdom Come: Deliverance.
THQ Nordic Desperados III Desperados III is a real-time tactics game developed by Mimimi Games and published by THQ Nordic. The game will be familiar to fans of Commandos and is the first instalment based on the IP since 2007. The game was released on 16 June and has received favourable reviews, with an average Metacritic score of 84 across the available platforms.
However, in terms of copies sold during Q1, the game’s performance has been somewhat below our expectations. We think Desperados III will sell the majority of its copies on PC and looking at the number of owners on Steam specifically as of today, ~100k copies appear to have been sold. As such, we think that one shouldn’t expect more than ~200k copies sold in total in Q1 across all platforms, which is below our previous expectations, which were in the 300-350k range. Desperados III, Owners on Steam
120,000 USD 60 90,000 100,000 USD 50
80,000 USD 40
60,000 USD 30
40,000 USD 20
20,000 USD 10
0 USD 0
Owners on Steam Price
Source: ABG Sundal Collier, SteamSpy, company data
SpongeBob SquarePants: Battle for Bikini Bottom - Rehydrated SpongeBob SquarePants: Rehydrated was released on 23 June, developed and published by THQ Nordic under a license from Nickelodeon, on PlayStation 4, Switch, Xbox One and PC. The game has reached an average Metacritic score of 67 across the available platforms, which is in line with our expectations.
In terms of sales, we don’t have any hard figures as of yet. However, the game is currently #1 on Steams Global Top Sellers list and at the day of the launch where it also gathered ~15.5k concurrent players. Additionally, it was in the top ten of Amazon’s U.S. top sellers list for Xbox One, PlayStation 4 and Nintendo Switch.
We initially estimated that the game would be successful primarily on consoles, as such the strong performance on Steam is noteworthy. The game will only contribute to Embracer’s revenues for one week in Q1, however, we expect the game to sell over 1m copies in due course.
24 June 2020 ABG Sundal Collier 5
Embracer Group
Remnant: From the Ashes – Swamps of Corsus DLC Remnant: From the Ashes, the base game, was released on 16 August 2019 by developer Gunfire Games (now owned by Embracer) and published by Perfect World, achieving strong sales and a good Metacritic score. However, a new DLC for the game was released on 28 April 2020, which has also attracted favourable reviews, with an average Metacritic score of 814, and is driving sales of the base game, where owners on Steam have increased by ~300k over the current quarter and owners on Playstation 4 have increased by ~80k.
It should be noted that Perfect World will once again recoup its marketing and development spending on the DLC before Gunfire Games – and Embracer – receives any royalties on revenues generated, which we suspect are in the 40% range.
Remnant: From the Ashes, Steam owners
1,600,000 1,407,000 USD 45
1,400,000 USD 40
1,200,000 1,108,000 USD 35 USD 30 1,000,000 USD 25 800,000 USD 20 600,000 USD 15 400,000 USD 10 200,000 USD 5 0 USD 0
Owners on Steam Price
Source: ABG Sundal Collier, SteamSpy, company data
Wreckfest Wreckfest was released on consoles (PS4 & XONE) on 27 August 2019. It was well received and gathered a Metacritic score of 83. The console launch was a strong revenue contributor in previous quarters, however the game seems to have continued to steam ahead in the current quarter, with game owners on PlayStation 4 increased from ~487k to ~612k5, and on Xbox One by approximately ~100k owners.
Wreckfest, PlayStation 4 owners
700,000 612,700 600,000 487,800
500,000
400,000
300,000
200,000
100,000
0
Owners on PS4
Source: ABG Sundal Collier, Gamstat, company data
4 https://www.metacritic.com/game/pc/remnant-from-the-ashes---swamps-of-corsus 5 https://gamstat.com/games/Wreckfest/ 24 June 2020 ABG Sundal Collier 6
Embracer Group
Deep Silver Saints Row: The Third – Remastered Saints Row: The Third was initially released back in 2011 when it was developed by Volition and published by the now defunct THQ. However on 22 May, Embracer released a remastered version of the game, also developed by Volition but published by Deep Silver, on PC (Epic Games Store), PlayStation 4 and Xbox One. The game has received favourable reviews, with an average Metacritic score of 73 across the available platforms.
In terms of sales, the game has exceeded our expectations, where it seems to have sold ~220k on PlayStation 4 and ~220k on Xbox One by 14 June. We currently have no way of measuring copies sold in the Epic Games Store, however we believe that the majority of copies will be sold on consoles, not PC. As such, we factor in approximately 600-700k copies sold during Q1 in total.
However, perhaps even more important is that through this successful remaster, Embracer is building a larger addressable market for Saints Row V, which we think is one of the AAA-titles that is set to be released during the next FY.
Saints Row: The Third - Remastered
250,000 217,600
200,000
150,000
100,000
50,000 24,900
0
Owners on PS4
Source: ABG Sundal Collier, Gamstat, company data
Metro Exodus Metro Exodus has had a very strong performance since its release on 15 February 2019 and has been the major revenue contributor for the Deep Silver segment during the past quarters by our estimates, which is why back catalogue sales have outperformed our estimates. Looking at Q1, Metro Exodus appears to have sold ~200k copies on Steam. Sales on PlayStation 4 seem to have performed well during the current quarter as well, where game owners appear to have increased by ~230k6. On Xbox One, approximately ~150k new game owners appear to have been gathered during Q1.
It should also be noted that Metro Exodus has remained on the Epic Games Store Top 20 list throughout the current quarter and that the developers of Metro Exodus are now receiving a greater royalty than during 2019, which affected Deep Silvers gross margin in Q4’19/20e, and will continue to do so in the current quarter.
6 https://gamstat.com/games/Metro_Exodus/ 24 June 2020 ABG Sundal Collier 7
Embracer Group
Metro Exodus, Steam owners Metro Exodus, PlayStation 4 owners 734,000 1,527,300 800,000 536,000 USD 45 1,550,000 700,000 USD 40 1,500,000
600,000 USD 35 1,450,000 USD 30 1,291,400 500,000 1,400,000 USD 25 400,000 1,350,000 USD 20 300,000 1,300,000 USD 15 200,000 USD 10 1,250,000 100,000 USD 5 1,200,000 0 USD 0 1,150,000
Owners on Steam Price Owners on PS4
Source: ABG Sundal Collier, SteamSpy, company data Source: ABG Sundal Collier, Gamstat, company data
Kingdom Come: Deliverance Kingdom Come: Deliverance, which was developed by Warhorse Studios, acquired by Embracer on 13 February 2019 and published by Deep Silver, has been one of the major revenue contributors to back catalogue sales for Deep Silver during the past few quarters, by our estimates.
The strong performance appears to have continued in the current quarter on Steam (~120k), PlayStation 4 (~100k7) and Xbox One (~100k), as is highlighted in the graphs below. Sales have however been aided by promotions etc.
Kingdome Come, Steam owners Kingdome Come, PlayStation 4 owners 1,817,000 2,000,000 1,691,000 USD 35 1,060,000 1,800,000 1,036,700 USD 30 1,040,000 1,600,000 1,400,000 USD 25 1,020,000 963,900 1,200,000 USD 20 1,000,000 1,000,000 800,000 USD 15 980,000 600,000 USD 10 960,000 400,000 USD 5 940,000 200,000 0 USD 0 920,000
Owners on Steam Price Owners on PS4
Source: ABG Sundal Collier, SteamSpy, company data Source: ABG Sundal Collier, Gamstat, company data
7 https://gamstat.com/games/Kingdom_Come_Deliverance/ 24 June 2020 ABG Sundal Collier 8
Embracer Group
Coffee Stain Satisfactory (Steam release) Satisfactory was released on 6 June on Steam in Early Access format after being an Epic Games Store exclusive for approximately one year. Initially we questioned what kind of demand there would be for the game on Steam, seeing the one-year exclusivity on Epic, however we were pleasantly surprised.
Satisfactory claimed the #1 spot on Steams Global Top Sellers list on the day of its launch and has claimed a top 10 spot ever since, which is a very strong performance and far exceeded our expectations8. Concurrent players on Steam topped at 27.4k9 on 14 June, but the game is still pulling ~20k player highs.
We don’t have any concrete sales figures for Satisfactory on Steam, as it has not been included on Steamspy as of yet. However, in our estimates for Coffee Stain, we include 350-400k copies sold during Q1.
Deep Rock Galactic The full release of Deep Rock Galactic, developed by Ghost Ship Games and published by Coffee Stain, was initiated on 13 May and the game has been very well received by our calculations, reaching a Metacritic score of 84 on PC and 80 on Xbox One10.
The Game also reached the #1 spot on Steams Global Top Sellers11 list during its launch day, remaining on the top 10 for a few days. Sales on Steam appears to have been very strong, with game owners increasing by ~680k during the quarter. Sales on Xbox One also look favourable, with owners increasing by more than 100k.
However, when considering financial estimates for Deep Rock Galactic, investors need to remember that the developer, Ghost Ship Games, is receiving an abnormal amount of royalties from the revenues generated: we suspect 60-70%. As such, despite the very strong sales figures, the revenue contribution to Coffee Stain during Q1 is relatively small.
Deep Rock Galactic, Steam owners
2,500,000 2,354,000 USD 35
USD 30 2,000,000 1,674,000 USD 25
1,500,000 USD 20
1,000,000 USD 15 USD 10 500,000 USD 5
0 USD 0
Owners on Steam Price
Source: ABG Sundal Collier, SteamSpy, company data
8 https://analytics.tinfonder.se/steam/title/app_526870 9 https://steamdb.info/app/526870/graphs/ 10 https://www.metacritic.com/search/all/deep%20rock%20galactic/results 11 https://analytics.tinfonder.se/steam/title/app_548430 24 June 2020 ABG Sundal Collier 9
Embracer Group
Saber Interactive Snowrunner SnowRunner is the first game out of newly acquired Saber Interactive and was released on PC (Epic Games Store), PlayStation 4 and Xbox One on 28 April. The game was developed by Saber Interactive – which also owns the IP – but published by Focus Home Interactive. The game has reached favourable reviews, reaching an average Metacritic score of 8112 across the given platforms.
Sales appear to have been very favourable, with Focus Home Interactive claiming that the game attracted approximately 1m players in six weeks13. We don’t have any efficient way of measuring game owners on the Epic Game Store as of yet, however, we note that the game has been claiming a top 5 spot on Epic’s Top Sellers list in the U.S. since launch.
However, the game appears to have gathered close to 400k owners on both PlayStation 414 and Xbox One. For Q1, we estimate that approximately 1.2m copies will have been sold in total over all platforms.
It should however be noted that Focus Home Interactive will first have to recoup its marketing and development investment before Saber Interactive starts receiving any royalties on revenues generated. We do however suspect that Saber’s royalties are sizeable, in the 50% range.
SnowRunner, PlayStation 4 owners
400,000 342,800 350,000
300,000
250,000
200,000
150,000 27,300 100,000
50,000
0
Owners on PS4
Source: ABG Sundal Collier, Gamstat, company data
World War Z (Game of the year edition) The Game of the Year Edition (“GOTY) of World War Z, developed and published by Saber Interactive, was released on 5 May 2020. The original version of the game has been a very successful title since its launch in April 2019, and the GOTY edition appears to have driven strong sales as well. Looking at Xbox One, the game appears to have gathered at least 300k new owners during Q1 and for PlayStation 4 owners seem to have increased by ~200k.
In our Q1 estimates for Saber Interactive, we estimate that ~900k copies of the GOTY edition have been sold in total.
12 https://www.metacritic.com/search/all/snowrunner/results 13 https://www.gamesindustry.biz/articles/2020-06-11-snowrunner-attracts-1m-players-in-six-weeks 14 https://gamstat.com/games/SnowRunner/ 24 June 2020 ABG Sundal Collier 10
Embracer Group
World War Z (GOTY), PlayStation 4 owners
2,000,000 1,948,100 1,950,000
1,900,000
1,850,000
1,800,000 1,737,800
1,750,000
1,700,000
1,650,000
1,600,000
Owners on PS4 Source: ABG Sundal Collier, Gamstat, company data
24 June 2020 ABG Sundal Collier 11
Embracer Group
Quarterly overview
Quarterly overview, Q1’16-Q4’20/21e, (SEKm) Quarterly overview (SEKm) Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q5'18 Q1'19/20 Q2'19/20 Q3'19/20 Q4'19/20 Q1'20/21e Q2'20/21e Q3'20/21e Q4'20/21e Games - THQ Nordic 43 53 78 128 82 86 85 255 135 146 124 352 143 185 330 333 307 350 350 500 350 Games - Deep Silver 0 0 0 0 0 0 0 0 257 338 252 187 794 373 442 467 515 515 575 500 600 Games - Coffee Stain 0 0 0 0 0 0 0 0 0 0 0 14 98 83 45 36 82 108 80 65 65 Games - Saber Interactive 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 275 200 250 250 Partner Publishing/Film 0 0 0 0 0 0 0 0 242 354 897 828 596 501 444 673 436 400 750 700 650 Net Sales 43 53 78 128 82 86 85 255 633 837 1,273 1,381 1,631 1,142 1,260 1,509 1,339 1,648 1,955 2,015 1,915
Capitalized w ork 6 8 10 12 13 14 19 33 58 93 102 106 116 131 177 221 224 208 237 222 274 Other operating income 1 3 3 3 1 2 -3 3 34 29 64 90 116 45 67 72 122 115 117 111 134 Total operating income 50 63 91 143 96 102 101 291 725 960 1,439 1,576 1,862 1,318 1,503 1,801 1,685 1,971 2,309 2,347 2,323
COGS -13 -18 -37 -51 -25 -24 -30 -69 -320 -466 -895 -838 -741 -528 -635 -747 666 -719 -989 -944 -906 Gross profit 30 35 41 77 57 61 55 186 313 371 377 542 889 614 625 762 673 928 966 1,071 1,009
Opex -13 -22 -29 -32 -29 -38 -37 -65 -179 -287 -329 -412 -503 -401 -450 -536 -524 -593 -684 -695 -747 Of w hich Other external expenses -4 -10 -14 -15 -11 -15 -16 -33 -75 -120 -158 -224 -291 -178 -192 -231 -183 -214 -254 -252 -249 Personnel expenses -9 -12 -15 -17 -18 -21 -22 -33 -104 -167 -171 -188 -211 -223 -258 -305 -344 -379 -430 -443 -498 Other operating expenses -1 0 0 1 -1 -2 1 1 0 0 0 0 0 0 0 0 3 0 0 0 0
EBITDA 23 23 25 61 42 40 35 156 226 207 215 326 619 389 418 518 495 659 635 708 670
D&A -9 -9 -9 -10 -10 -9 -11 -54 -119 -154 -124 -174 -447 -308 -342 -427 -399 -683 -690 -691 -689
Adj. EBIT 18 18 19 54 36 34 28 113 125 67 99 194 396 204 241 302 286 431 415 487 451
EBIT 14 14 16 51 32 30 24 102 107 53 91 152 172 81 76 91 97 -24 -55 17 -19
Non-recurring items 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Net financials 0 0 0 -1 0 0 -1 -5 -9 -4 -3 -4 -9 2 3 -15 73 -6 -6 -6 -6
PTP 14 14 16 50 31 30 23 97 98 49 88 148 163 83 80 76 170 -30 -61 11 -25
Taxes -3 -3 -3 -12 -8 -7 -4 -24 -17 -15 -23 -34 -60 -31 -15 -43 -37 0 0 -3 0 Tax rate 23.5% 23.3% 18.4% 23.3% 25.3% 22.6% 18.8% 24.4% 17.3% 31.2% 25.7% 23.1% 36.7% 36.7% 18.9% 56.0% 21.9% 0.0% 0.0% 26.0% 0.0%
Net profit 11 11 13 38 24 23 19 73 81 33 65 114 103 53 65 34 132 -30 -61 8 -25
EPS Basic (SEK) 0.18 0.18 0.21 0.59 0.33 0.32 0.26 0.93 1.03 0.42 0.74 1.32 1.10 0.51 0.23 0.12 0.42 -0.08 -0.16 0.02 -0.07 EPS Adj. (SEK) 0.23 0.23 0.27 0.64 0.37 0.37 0.31 0.97 1.25 0.59 0.83 1.81 3.48 1.70 0.82 0.87 1.03 1.14 1.10 1.28 1.19 Grow th Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q5'18 Q1'19/20 Q2'19/20 Q3'19/20 Q4'19/20 Q1'20/21e Q2'20/21e Q3'20/21e Q4'20/21e Sales y-o-y 14.7% 42.9% 94.6% 30.3% 89.9% 62.2% 8.8% 99.3% 672.7% 878.8% 1403.1% 440.6% 157.6% 36.4% -1.0% 9.3% -17.9% 44.3% 55.2% 33.6% 43.0% EBITDA y-o-y 32.5% 20.8% 57.2% 16.3% 81.8% 71.2% 36.4% 157.4% 438.7% 421.1% 521.3% 108.6% 174.0% 88.2% 94.7% 58.8% -19.9% 69.2% 51.9% 36.7% 35.3% Adj. EBIT y-o-y 43.9% 14.2% 50.9% 39.9% 102.8% 93.9% 45.0% 110.6% 251.0% 96.2% 251.2% 71.6% 216.9% 204.5% 143.9% 55.7% -27.8% 111.4% 72.6% 61.4% 57.5% EBIT y-o-y 52.8% 13.8% 66.9% 43.8% 124.2% 113.3% 50.3% 101.5% 236.2% 73.0% 278.1% 49.1% 60.6% 54.4% -15.8% -40.2% -43.7% -130.0% -171.8% -80.8% -119.8% Net profit y-o-y 53.1% 11.3% 76.9% 35.2% 119.7% 119.5% 50.1% 93.2% 244.1% 44.1% 241.9% 55.6% 27.2% 57.3% -0.6% -70.6% 28.4% -157.6% -194.2% -74.7% -119.0% EPS y-o-y 53.1% 11.3% 76.9% 25.8% 83.0% 82.9% 24.5% 57.2% 213.8% 29.2% 180.6% 43.0% 6.9% 22.6% -68.8% -91.0% -61.3% -115.9% -171.0% -80.9% -115.9% EPS Adj. y-o-y 40.2% 11.9% 54.1% 21.9% 60.1% 59.8% 16.9% 53.2% 233.8% 58.8% 165.4% 86.2% 178.6% 190.1% -1.3% -52.0% -70.4% -33.0% 34.8% 47.4% 15.8% Margins Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q5'18 Q1'19/20 Q2'19/20 Q3'19/20 Q4'19/20 Q1'20/21e Q2'20/21e Q3'20/21e Q4'20/21e Gross margin 69.1% 65.7% 52.8% 60.4% 70.1% 71.6% 64.9% 72.9% 49.5% 44.4% 29.7% 39.3% 54.5% 53.8% 49.6% 50.5% 50.3% 56.3% 49.4% 53.2% 52.7% EBITDA margin 53.5% 44.0% 32.6% 47.4% 51.2% 46.4% 40.8% 61.2% 35.7% 24.7% 16.9% 23.6% 37.9% 34.1% 33.2% 34.4% 37.0% 40.0% 32.5% 35.2% 35.0% Adj. EBIT margin 40.7% 33.4% 24.9% 41.9% 43.5% 39.9% 33.2% 44.3% 19.8% 8.0% 7.7% 14.0% 24.3% 17.8% 19.1% 20.0% 21.4% 26.1% 21.2% 24.2% 23.5% EBIT margin 32.9% 27.0% 20.5% 39.5% 38.9% 35.5% 28.4% 39.9% 16.9% 6.3% 7.1% 11.0% 10.5% 7.1% 6.1% 6.0% 7.2% -1.5% -2.8% 0.9% -1.0% Net margin 24.8% 20.1% 16.3% 29.6% 28.7% 27.1% 22.5% 28.7% 12.8% 4.0% 5.1% 8.3% 6.3% 4.6% 5.1% 2.2% 9.9% -1.8% -3.1% 0.4% -1.3%
Source: ABG Sundal Collier, company data
24 June 2020 ABG Sundal Collier 12
Embracer Group
Annual overview
Annual overview, 2013-2022/23e, (SEKm)
Annual overview (SEKm) 2013 2014 2015 2016 2017 2018 2019/20 2020/21e 2021/22e 2022/23e Games - THQ Nordic 102 178 213 302 508 899 1,155 1,550 1,650 1,750 Games - Deep Silver 0 0 0 0 0 1,828 1,796 2,190 3,200 3,300 Games - Coffee Stain 0 0 0 0 0 112 246 318 310 330 Games - Saber Interactive 0 0 0 0 0 0 0 975 1,075 1,215 Partner Publishing/Film 0 0 0 0 0 2,916 2,054 2,500 2,800 2,950 Net Sales 102 178 213 302 508 5,754 5,249 7,533 9,035 9,545
Capitalized w ork 0 0 8 36 80 475 753 940 1,118 1,432 Other operating income 2 4 5 9 3 333 306 478 569 620 Total operating income 104 182 226 347 590 6,562 6,308 8,950 10,722 11,597
COGS -32 -58 -70 -119 -148 -3,261 -2,576 -3,558 -4,123 -4,150 Gross profit 71 121 143 183 360 2,493 2,673 3,974 4,912 5,395
Opex -24 -29 -51 -96 -169 -1,709 -1,911 -2,719 -3,207 -3,627 Of w hich Other external expenses -13 -15 -29 -43 -75 -868 -784 -969 -1,175 -1,241 Personnel expenses -10 -14 -22 -52 -94 -841 -1,130 -1,750 -2,033 -2,386 Other operating expenses -1 0 0 0 0 0 3 0 0 0
EBITDA 49 95 105 132 273 1,592 1,821 2,673 3,392 3,820
D&A -17 -27 -38 -37 -84 -1,018 -1,476 -2,754 -3,081 -3,241
Adj. EBIT 49 95 79 108 211 881 1,032 1,784 2,252 2,670
EBIT 32 68 67 95 188 574 345 -81 312 580
Non-recurring items 0 0 0 0 0 0 0 0 0 0
Net financials -2 -1 -1 -2 -6 -29 63 -24 -20 -20
PTP 30 67 66 93 182 545 409 -105 292 560
Taxes 0 -15 -14 -21 -43 -149 -126 -3 -76 -145 Tax rate 0.4% 22.3% 21.6% 22.6% 23.5% 27.2% 30.7% -2.8% 26.0% 26.0%
Net profit 30 52 52 72 139 397 283 -108 216 414
EPS Basic (SEK) 0.50 0.87 0.86 1.18 1.88 4.22 0.91 -0.29 0.58 1.11 EPS Adj. (SEK) 0.50 0.87 1.07 1.39 2.07 7.47 3.11 4.72 5.79 6.72 Grow th 2013 2014 2015 2016 2017 2018 2019/20 2020/21e 2021/22e 2022/23e Sales y-o-y 74.0% 19.6% 41.8% 68.1% 1033.7% -8.8% 43.5% 19.9% 5.6% EBITDA y-o-y 95.3% 10.4% 26.0% 106.0% 484.1% 14.4% 46.8% 26.9% 12.6% Adj. EBIT y-o-y 95.3% -17.2% 37.2% 94.9% 317.7% 17.2% 72.8% 26.2% 18.6% EBIT y-o-y 115.0% -2.3% 42.7% 98.1% 205.2% -39.9% -123.4% -485.4% 86.0% Net profit y-o-y 74.0% -0.8% 39.1% 93.4% 185.0% -28.6% -138.1% -300.1% 91.9% EPS y-o-y 74.0% -0.8% 36.5% 59.9% 124.2% -78.5% -131.9% -300.1% 91.9% EPS Adj. y-o-y 74.0% 22.8% 30.1% 49.3% 260.1% -58.3% 51.7% 22.7% 16.2% Margins 2013 2014 2015 2016 2017 2018 2019/20 2020/21e 2021/22e 2022/23e Gross margin 69.0% 67.7% 67.1% 60.6% 70.9% 43.3% 50.9% 52.8% 54.4% 56.5% EBITDA margin 47.7% 53.5% 49.4% 43.8% 53.7% 27.7% 34.7% 35.5% 37.5% 40.0% Adj. EBIT margin 47.7% 53.5% 37.0% 35.8% 41.5% 15.3% 19.7% 23.7% 24.9% 28.0% EBIT margin 31.0% 38.3% 31.3% 31.5% 37.1% 10.0% 6.6% -1.1% 3.4% 6.1% Net margin 29.3% 29.3% 24.3% 23.8% 27.4% 6.9% 5.4% -1.4% 2.4% 4.3% Other metrics 2013 2014 2015 2016 2017 2018 2019/20 2020/21e 2021/22e 2022/23e EV/Sales 6.7x 6.0x 4.9x 4.5x EV/EBITDA 19.2x 16.8x 12.9x 11.3x EV/Adj. EBIT 33.9x 25.2x 19.5x 16.1x EV/EBIT 101.5x -556.4x 140.6x 74.3x Adj. P/E 37.0x 26.5x 21.6x 18.6x P/E 126.7x -431.6x 215.7x 112.4x ND/EBITDA -0.2x -0.2x -1.0x -1.9x -1.4x -0.5x -0.6x -0.8x -0.9x ROE adj. 82.6% 82.7% 37.9% 20.8% 18.7% 13.8% 23.0% 28.2% 32.8% ROIC adj. 273.7% 144.9% 60.9% 43.8% 26.9% 20.7% 15.9% 28.4% 34.9% ROCE adj. 104.8% 84.7% 26.9% 15.5% 11.3% 13.9% 13.1% 16.5% 19.0% FCF yield -12.5% -14.6% -34.1% -2.6% 1.2% 2.5% 1.6% FCF/IC 179.2% 40.7% -34.9% -34.9% -51.3% -14.1% 5.0% 11.7% 7.8% Source: ABG Sundal Collier, company data
24 June 2020 ABG Sundal Collier 13
Embracer Group
Valuation
We look at Embracer in terms of 1) three sum-of-the-parts valuations based on our 20/21e EBITDA estimates and EV/EBITDA multiples based on relevant peers, 2) a peer group comparison, and 3) historical 12-month forward multiples.
Sum-of-the-parts We have attempted to identify potential valuation multiples for Embracer’s various segments based on the valuation of relevant peers, which are included in the peer table on the next page.
For example, in valuing Embracer’s THQ Nordic, Saber Interactive and Coffee Stain segment, we look to peers like Paradox Interactive, Frontier Developments and Codemasters. The Deep Silver segment is trickier, seeing as it has historically relied on licensed IPs and shown volatile earnings levels, and as such we do not believe that it deserves a valuation along with the likes of, for example, Paradox.
The Partner Publishing segment is considerably different from the rest of the group, as its core business is physical distribution of video games, and thus we look to peers like Digital Bros, Focus Home Interactive and GameStop for guidance.
Below we highlight our EBITDA estimates and growth assumptions for 20/21e, which we base our SOTP valuation range on.
SOTP estimates overview, (SEKm) SOTP (SEKm) EBITDA 20/21e Margin estimates EBITDA y-o-y growth
THQ Nordic 853 55% 34% Deep Silver 876 40% 22% Coffee Stain 191 60% 29% Saber Interactive 536 55% n.a. Partner Publishing 250 10% 22% Number of shares (m) 372.4
Source: ABG Sundal Collier, company data
Ultimately, our three SOTP valuations indicate a fair value range of SEK 104-141 per share, based on the following assumptions and our current FY EBITDA estimates.
SOTP valuation overview, (SEKm) SOTP (SEKm) Multiple Valuation Value per share Multiple Valuation Value per share Multiple Valuation Value per share
THQ Nordic 16x EV/EBITDA 13,640 37 18x EV/EBITDA 15,345 41 21x EV/EBITDA 18,244 21 Deep Silver 12x EV/EBITDA 10,512 28 15x EV/EBITDA 13,140 35 17x EV/EBITDA 15,242 18 Coffee Stain 16x EV/EBITDA 3,048 8 18x EV/EBITDA 3,429 9 21x EV/EBITDA 4,077 5 Saber Interactive 16x EV/EBITDA 8,580 23 18x EV/EBITDA 9,653 26 21x EV/EBITDA 11,476 13 Partner Publishing 6x EV/EBITDA 1,500 4 7x EV/EBITDA 1,850 5 8x EV/EBITDA 2,050 2 Enterprise value 37,280 100 Enterprise value 43,417 117 Enterprise value 51,088 60 Net debt (20/21e) -1,554 -4 Net debt (20/21e) -1,554 -4 Net debt (20/21e) -1,554 -4 Market cap 38,834 104 Market cap 44,971 121 Market cap 52,643 141
Source: ABG Sundal Collier, company data
24 June 2020 ABG Sundal Collier 14
Embracer Group
Relative valuation In order to obtain a comprehensive overview of the valuation and operational performance of corporations in the video games industry, we compare Embracer across three peer groups of video game developers and publishers: large, mid-sized and mobile. The mobile peer group is included to highlight the valuation and operative performance differences among video game segments.
Valuation and operative performance across peer groups Large developers & publishers Mcap Share price P/E (x) EV/EBIT (x)* EV/EBITDA (x) EBIT-margin (%)* EBITDA-margin (%) EV/Sales (x) ROIC (%) CAGR '19-'22e Company (SEKm) Ccy SP 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e Sales EBIT
Activision Blizzard 546,069 SEK 708.7 27.8 25.2 22.0 20.2 17.5 14.5 19.1 16.5 14.0 37.5 38.8 40.5 39.7 40.9 42.0 7.6 6.8 5.9 12.6 12.6 12.9 9.4 17.8 Electronic Arts 349,526 SEK 1,210.7 26.1 23.5 21.0 18.4 16.0 13.8 16.7 14.7 13.0 32.0 33.1 34.2 35.2 36.0 36.2 5.9 5.3 4.7 16.7 17.3 16.9 6.9 9.6 Take-Tw o 151,444 SEK 1,329.1 33.6 27.0 21.3 23.9 18.2 13.2 22.0 17.0 13.0 20.5 21.3 24.2 22.3 22.8 24.6 4.9 3.9 3.2 15.8 17.1 18.6 8.7 11.3 Ubisoft 88,545 SEK 730.6 30.8 21.1 20.1 20.5 14.0 13.2 7.7 6.1 5.4 18.1 22.7 23.0 48.5 52.0 56.0 3.7 3.2 3.0 20.7 162.5 Bandai Namco 112,738 SEK 513.2 22.0 19.1 17.1 13.4 11.2 9.8 10.3 8.8 7.7 11.1 12.3 12.9 14.5 15.6 16.5 1.5 1.4 1.3 12.1 13.0 13.4 3.9 10.1 Nintendo 511,447 SEK 4,293.4 21.9 20.4 20.5 14.8 13.5 13.3 14.4 13.3 13.2 28.0 29.7 30.4 28.7 30.1 30.8 4.1 4.0 4.1 16.4 16.4 15.2 -0.4 3.8 NCsoft 145,405 SEK 7,056.0 24.9 19.2 11.5 18.2 13.2 6.8 17.2 12.6 6.3 37.9 41.9 12.1 40.1 43.9 12.8 6.9 5.5 1.0 23.4 24.3 21.1 27.1 44.9 NEXON 194,333 SEK 219.8 20.4 18.6 18.1 13.9 11.2 10.0 12.6 10.4 9.4 42.4 44.3 44.5 46.7 47.6 47.3 5.9 5.0 4.4 15.0 14.1 12.7 9.2 15.2 Peer average 262,438 25.9 21.8 18.9 17.9 14.4 11.8 15.0 12.4 10.2 28.4 30.5 27.7 34.5 36.1 33.3 5.1 4.4 3.4 16.0 16.4 15.8 10.7 34.4 Peer median 172,888 25.5 20.7 20.3 18.3 13.8 13.2 15.6 12.9 11.2 30.0 31.4 27.3 37.4 38.5 33.5 5.4 4.5 3.6 15.8 16.4 15.2 9.0 13.2 Embracer Group (ABGSCe) 46,544 SEK 125 26.5 21.6 18.6 25.2 19.5 16.1 16.8 12.9 11.3 23.7 24.9 28.0 35.5 37.5 40.0 6.0 4.9 4.5 15.9 28.4 34.9 22.1 37.3 vs peer average 2% -1% -2% 41% 36% 36% 12% 4% 10% -17% -18% 1% 3% 4% 20% 18% 11% 31% -1% 73% 121% 106% 8% vs peer median 4% 4% -8% 38% 41% 22% 8% 0% 1% -21% -21% 3% -5% -2% 19% 11% 8% 24% 0% 73% 130% 146% 182% Mid-sized developers & publishers Mcap Share price P/E (x) EV/EBIT (x)* EV/EBITDA (x) EBIT-margin (%)* EBITDA-margin (%) EV/Sales (x) ROIC (%) CAGR '19-'22e Company (SEKm) Ccy SP 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e Sales EBIT
Konami 42,605 SEK 319.8 19.9 15.8 14.7 11.1 8.5 7.5 7.4 6.2 5.6 15.0 18.0 18.8 22.5 24.5 25.0 1.7 1.5 1.4 7.3 9.0 9.2 0.9 18.1 CD Projekt 91,667 SEK 953.7 18.2 27.0 31.2 14.0 20.3 22.5 12.9 19.0 20.9 73.1 70.7 68.7 79.5 75.5 74.1 10.2 14.4 15.5 65.1 108.7 Paradox Interactive 20,624 SEK 195.3 38.7 34.6 30.6 33.6 29.0 25.0 19.5 16.8 14.6 34.3 34.9 34.8 59.1 60.3 59.7 11.5 10.1 8.7 20.2 23.2 Frontier Developments 7,920 SEK 206.2 46.1 30.7 22.5 35.3 22.9 16.2 20.9 14.5 10.3 22.3 23.7 23.9 37.7 37.4 37.7 7.9 5.4 3.9 15.7 18.8 15.1 19.7 Focus Home Interactive 1,470 SEK 277.4 12.5 9.1 8.3 6.1 9.0 6.5 12.7 13.5 11.8 12.6 1.1 0.8 11.1 20.3 Team17 Group 8,681 SEK 67.1 37.9 34.4 31.1 29.5 26.0 22.4 27.0 23.7 20.6 33.3 32.9 33.5 36.4 36.0 36.3 9.8 8.5 7.5 11.5 12.1 Remedy Entertainment 2,917 SEK 241.7 31.3 25.6 20.3 22.5 18.0 21.1 16.6 28.0 31.3 34.2 29.9 33.8 41.1 6.3 5.6 15.9 37.5 11 Bit Studios 3,148 SEK 1,376.2 52.1 85.0 13.9 46.3 74.9 11.3 33.8 50.4 9.9 37.7 30.4 64.1 51.5 45.2 73.0 17.4 22.8 7.2 n.a. n.a. Code Masters 5,974 SEK 39.5 23.7 21.5 20.1 20.5 18.3 17.1 16.2 16.9 16.3 24.9 24.9 24.4 31.5 26.9 25.7 5.1 4.6 4.2 19.6 20.4 15.8 13.0 12.6 Digital Bros 3,379 SEK 236.9 24.2 16.1 16.1 12.9 13.2 14.3 2.1 1.8 26.4 n.a. Sumo Group 3,391 SEK 23.0 32.1 24.8 22.5 24.8 18.9 16.3 20.2 15.2 12.9 20.2 21.6 21.8 24.9 26.8 27.3 5.0 4.1 3.5 11.1 14.8 12.7 15.9 13.7 Koei Tecmo 38,296 SEK 301.5 26.8 23.9 21.2 21.8 20.4 14.8 23.3 17.5 15.1 38.2 40.8 42.9 40.0 46.5 46.6 7.1 5.9 5.2 12.7 23.3 Square Enix 57,568 SEK 482.6 23.2 19.7 19.1 12.7 10.5 9.7 11.3 9.7 8.9 13.7 15.1 15.6 15.5 16.3 17.1 1.7 1.6 1.5 11.6 12.5 12.0 6.8 15.1 Capcom 37,122 SEK 347.7 24.7 22.1 20.6 19.0 16.6 15.1 16.7 14.5 13.2 28.9 29.6 30.8 32.9 33.7 35.3 5.5 4.9 4.7 15.2 15.4 14.6 6.2 10.2 Peer average 23,197 29.4 27.9 22.3 22.5 21.7 16.2 18.4 17.5 13.5 28.2 28.7 34.5 36.4 36.6 41.6 6.6 6.6 5.7 13.4 15.1 12.9 17.0 26.2 Peer median 8,301 25.7 24.4 20.9 21.1 18.6 16.2 19.5 16.6 13.2 26.4 27.2 32.2 32.9 33.8 37.0 5.9 5.2 4.7 13.4 15.1 12.7 13.0 18.9 Embracer Group (ABGSCe) 46,544 SEK 125 26.5 21.6 18.6 25.2 19.5 16.1 16.8 12.9 11.3 23.7 24.9 28.0 35.5 37.5 40.0 6.0 4.9 4.5 15.9 28.4 34.9 22.1 37.3 vs peer average -10% -23% -17% 12% -10.1% 0% -9% -26% -16% -16% -13% -19% -3% 3% -4% -10% -26% -22% 18% 88% 171% 30% 42% vs peer median 3% -11% -11% 19% 5% 0% -14% -22% -14% -10% -8% -13% 8% 11% 8% 1% -6% -3% 18% 89% 174% 70% 97% Mobile developers & publishers Mcap Share price P/E (x) EV/EBIT (x)* EV/EBITDA (x) EBIT-margin (%)* EBITDA-margin (%) EV/Sales (x) ROIC (%) CAGR '19-'22e Company (SEKm) Ccy SP 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e Sales EBIT
Com2us 9,765 SEK 804.5 11.2 9.3 8.6 5.5 3.6 2.7 5.2 3.4 2.6 26.0 27.3 28.1 27.8 28.8 29.2 1.4 1.0 0.8 11.5 12.4 12.1 n.a. n.a. Stillfront 27,656 SEK 810.0 23.9 20.1 18.4 19.3 15.6 13.7 16.1 13.0 11.2 34.6 35.2 35.3 41.4 42.1 43.1 6.7 5.5 4.8 41.5 46.4 Zynga 84,811 SEK 88.7 30.8 26.7 22.0 21.4 17.1 13.2 21.7 17.7 14.1 21.1 22.9 26.3 20.8 22.2 24.7 4.5 3.9 3.5 10.2 10.4 11.7 25.1 G5 Entertainment 1,820 SEK 202.6 22.2 17.9 15.3 16.4 13.4 11.0 6.9 6.1 5.1 7.3 7.9 8.4 17.4 17.4 18.3 1.2 1.1 0.9 9.0 37.5 Rovio Entertainment 4,456 SEK 57.9 16.9 16.7 15.6 9.4 8.8 7.7 7.3 7.0 6.4 12.6 12.0 12.5 16.4 15.1 14.9 1.2 1.1 1.0 0.4 21.5 Glu Mobile 14,633 SEK 87.8 28.2 21.2 13.6 25.8 18.8 12.0 24.0 16.8 10.4 9.9 12.0 14.5 10.7 13.5 16.8 2.6 2.3 1.7 17.1 17.9 15.7 35.4 Peer average 23,857 22.2 18.6 15.6 16.3 12.9 10.0 13.5 10.7 8.3 18.6 19.6 20.9 22.4 23.2 24.5 2.9 2.5 2.1 12.9 13.6 12.1 15.6 33.2 Peer median 12,199 23.1 19.0 15.5 17.8 14.5 11.5 11.7 10.0 8.4 16.9 17.5 20.4 19.1 19.8 21.5 2.0 1.7 1.3 11.5 12.4 12.1 11.7 35.4 Embracer Group (ABGSCe) 46,544 SEK 125 26.5 21.6 18.6 25.2 19.5 16.1 16.8 12.9 11.3 23.7 24.9 28.0 35.5 37.5 40.0 6.0 4.9 4.5 15.9 28.4 34.9 22.1 37.3 vs peer average 19% 16% 19% 55% 51% 61% 24% 21% 36% 27% 27% 34% 58% 62% 63% 104% 97% 113% 22% 109% 189% 41% 12% vs peer median 15% 14% 20% 41% 34% 41% 44% 29% 34% 40% 43% 37% 86% 90% 86% 198% 192% 235% 37% 129% 189% 89% 5% *Adjusted EV/EBIT, P/E and ROIC for Embracer Group to ease comparison to IFRS 16 peers
Source: ABG Sundal Collier (only for Embracer Group), FactSet, company data
24 June 2020 ABG Sundal Collier 15
Embracer Group
EV/sales vs. EBIT margin, ‘20e EV/sales vs. EBIT margin, ‘21e 20x 25x 11 Bit 18x 11 Bit 16x 20x
14x Paradox 12x 15x Team17 10x Paradox
8x Frontier 10x Embracer Team17 EV/Sales '20eEV/Sales Remedy '21e EV/Sales Sumo Group 6x Frontier Digital Bros Koei Tecmo Capcom Sumo Group Remedy 4x 5x Digital Bros Koei Tecmo Embracer Konami Code Masters 2x Code Masters Focus Home Capcom Square Enix Square Enix Konami 0x 0x Focus Home 0% 5% 10% 15% 20% 25% 30% 35% 40% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% EBIT margin '20e EBIT margin '21e
Source: ABG Sundal Collier (for Embracer), FactSet, company data Source: ABG Sundal Collier (for Embracer), FactSet, company data
Based on FactSet consensus, Embracer is currently trading at an f12m EV/adj. EBIT of approximately 19.6x, which represents a premium of approximately 6.8% compared to the three-year historical average of 18.3x. Looking at the f12m adjusted P/E, we find that Embracer is currently trading at around 28.2x, which corresponds to a premium of 13.8% compared to the three-year historical average of 24.7x.
F12m EV/adj. EBIT F12m adj. P/E 50x 100.0% 90.0% 35x 45x 80.0% 40x 60.0% 30x 60.0% 35x 28.2 40.0% 25x 30.0% 19.6 30x 20.0% 20x 25x 0.0% 0.0% 15x 20x -20.0% -30.0% 15x -40.0% 10x 10x -60.0% -60.0% 5x 5x -80.0%
0x -90.0% 0x -100.0%
Premium/Discount F12m EV/EBIT Avg. EV/EBIT Premium/Discount F12m P/E Avg. P/E
Source: ABG Sundal Collier, FactSet, company data Source: ABG Sundal Collier, FactSet, company data
In reviewing Embracer’s f12m EV/EBIT multiples since they became available on FactSet, we find that Embracer has traded mostly in line with its large Western peers, but that a discount has developed compared to its and mid-sized Western video game publisher and developer peers.
24 June 2020 ABG Sundal Collier 16
Embracer Group
F12m EV/EBIT, mid-sized Western peers F12m EV/EBIT, large Western peers 60x 40x
35x 50x 30x 40x 25x
30x 20x
15x 20x 10x 10x 5x
0x 0x
Embracer Paradox Frontier 11 Bit Focus Home Embracer Ubisoft Take-Two Activision Blizzard Electronic Arts
Source: ABG Sundal Collier, FactSet, company data Source: ABG Sundal Collier, FactSet, company data
24 June 2020 ABG Sundal Collier 17
Embracer Group
Income Statement (SEKm) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020e Q3 2020e Q4 2020e Q1 2021e Sales 1,142 1,260 1,509 1,339 1,648 1,955 2,015 1,915 COGS -528 -635 -747 666 -719 -989 -944 -906 Gross profit 614 625 762 2,005 928 966 1,071 1,009 Other operating items -225 -207 -244 -1,510 -269 -330 -363 -339 EBITDA 389 418 518 495 659 635 708 670 Depreciation and amortisation -308 -342 -427 -399 -683 -690 -691 -689 EBITA 81 76 91 97 -24 -55 17 -19 EO items 0 0 0 0 0 0 0 0 Impairment and PPA amortisation 0 0 0 0 0 0 0 0 EBIT 81 76 91 97 -24 -55 17 -19 Net financial items 2 3 -15 73 -6 -6 -6 -6 Pretax profit 83 80 76 170 -30 -61 11 -25 Tax -31 -15 -43 -37 0 0 -3 0 Net profit 53 65 34 132 -30 -61 8 -25 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 53 65 34 132 -30 -61 8 -25 EPS 0.61 0.21 0.11 0.42 -0.10 -0.20 0.03 0 EPS Adj 0.61 0.21 0.11 0.42 -0.10 -0.20 0.03 0 Total extraordinary items after tax 0 0 0 0 0 0 0 0 Tax rate (%) 36.7 18.9 56.0 21.9 0 0 26.0 0 Gross margin (%) 53.8 49.6 50.5 149.7 56.3 49.4 53.2 52.7 EBITDA margin (%) 34.1 33.2 34.4 37.0 40.0 32.5 35.2 35.0 EBITA margin (%) 7.1 6.1 6.0 7.2 -1.5 -2.8 0.9 -1.0 EBIT margin (%) 7.1 6.1 6.0 7.2 -1.5 -2.8 0.9 -1.0 Pretax margin (%) 7.3 6.3 5.1 12.7 -1.8 -3.1 0.6 -1.3 Net margin (%) 4.6 5.1 2.2 9.9 -1.8 -3.1 0.4 -1.3 Growth rates Y/Y Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020e Q3 2020e Q4 2020e Q1 2021e Sales growth (%) 36.4 -1.0 9.3 -17.9 44.3 55.2 33.6 43.0 EBITDA growth (%) 88.2 94.7 58.8 -19.9 69.2 51.9 36.7 35.3 EBIT growth (%) 54.4 -15.8 -40.2 -43.7 -chg -chg -80.8 -chg Net profit growth (%) 57.3 -0.6 -70.6 28.4 -chg -chg -74.7 -chg EPS growth (%) 57.3 -0.6 -70.6 28.4 -chg -chg -74.7 -chg Adj earnings numbers Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020e Q3 2020e Q4 2020e Q1 2021e EBITDA Adj 389 418 518 495 659 635 708 670 EBITDA Adj margin (%) 34.1 33.2 34.4 37.0 40.0 32.5 35.2 35.0 EBITA Adj 81 76 91 97 -24 -55 17 -19 EBITA Adj margin (%) 7.1 6.1 6.0 7.2 -1.5 -2.8 0.9 -1.0 EBIT Adj 81 76 91 97 -24 -55 17 -19 EBIT Adj margin (%) 7.1 6.1 6.0 7.2 -1.5 -2.8 0.9 -1.0 Pretax profit Adj 83 80 76 170 -30 -61 11 -25 Net profit Adj 53 65 34 132 -30 -61 8 -25 Net profit to shareholders Adj 53 65 34 132 -30 -61 8 -25 Net Adj margin (%) 4.6 5.1 2.2 9.9 -1.8 -3.1 0.4 -1.3 Source: ABG Sundal Collier, Company data
24 June 2020 ABG Sundal Collier 18
Embracer Group
Income Statement (SEKm) na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Sales na 178 213 302 508 5,754 5,249 7,533 9,035 9,545 COGS na -58 -70 -119 -148 -3,261 -2,576 -3,558 -4,123 -4,150 Gross profit na 121 143 183 360 2,493 2,673 3,974 4,912 5,395 Other operating items na -25 -38 -51 -87 -901 -852 -1,301 -1,520 -1,575 EBITDA na 95 105 132 273 1,593 1,821 2,673 3,392 3,820 Depreciation and amortisation na -27 -38 -37 -84 -1,018 -1,476 -2,754 -3,081 -3,241 Of which leasing depreciation na 0 0 0 0 0 0 0 0 0 EBITA na 68 67 95 188 575 345 -81 312 580 EO items na 0 0 0 0 0 0 0 0 0 Impairment and PPA amortisation na 0 0 0 0 0 0 0 0 0 EBIT na 68 67 95 188 575 345 -81 312 580 Net financial items na -1 -1 -2 -6 -29 63 -24 -20 -20 Pretax profit na 67 66 93 182 545 409 -105 292 560 Tax na -15 -14 -21 -43 -149 -126 -3 -76 -145 Net profit na 52 52 72 139 397 283 -108 216 414 Minority interest na 0 -1 0 0 0 0 0 0 0 Net profit discontinued na 0 0 0 0 0 0 0 0 0 Net profit to shareholders na 52 51 72 139 397 283 -108 216 414 EPS na 0.87 0.85 1.00 1.76 4.22 0.91 -0.29 0.58 1.11 EPS Adj na 0.87 0.85 1.00 1.76 4.22 0.91 -0.29 0.58 1.11 Total extraordinary items after tax na 0 0 0 0 0 0 0 0 0 Leasing payments na 0 0 0 0 0 0 0 0 0 Tax rate (%) na 22.3 21.6 22.6 23.5 27.2 30.7 2.8 26.0 26.0 Gross margin (%) na 67.7 67.1 60.6 70.9 43.3 50.9 52.8 54.4 56.5 EBITDA margin (%) na 53.5 49.4 43.8 53.7 27.7 34.7 35.5 37.5 40.0 EBITA margin (%) na 38.3 31.3 31.5 37.1 10.0 6.6 -1.1 3.4 6.1 EBIT margin (%) na 38.3 31.3 31.5 37.1 10.0 6.6 -1.1 3.4 6.1 Pretax margin (%) na 37.7 31.0 30.8 35.9 9.5 7.8 -1.4 3.2 5.9 Net margin (%) na 29.3 24.3 23.8 27.4 6.9 5.4 -1.4 2.4 4.3 Growth rates Y/Y na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Sales growth (%) na na 19.6 41.8 68.1 1,033.7 -8.8 43.5 19.9 5.6 EBITDA growth (%) na na 10.4 26.0 106.0 484.2 14.3 46.8 26.9 12.6 EBIT growth (%) na na -2.3 42.7 98.1 205.3 -39.9 -123.4 485.4 86.0 Net profit growth (%) na na -0.8 39.1 93.4 185.1 -28.7 -138.1 300.1 91.9 EPS growth (%) na na -1.8 17.0 75.8 140.4 -78.5 -131.9 300.1 91.9 Profitability na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e ROE (%) na na 66.2 32.1 18.9 10.6 4.1 -1.1 1.7 3.3 ROE Adj (%) na na 66.2 32.1 18.9 10.6 4.1 -1.1 1.7 3.3 ROCE (%) na na 86.0 39.8 23.4 13.6 5.8 -0.8 2.4 4.3 ROCE Adj(%) na na 86.0 39.8 23.4 13.6 5.8 -0.8 2.4 4.3 ROIC (%) na na 96.0 51.9 35.4 17.5 4.5 -1.0 2.2 4.5 ROIC Adj (%) na na 96.0 51.9 35.4 17.5 4.5 -1.0 2.2 4.5 Adj earnings numbers na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e EBITDA Adj na 95 105 132 273 1,593 1,821 2,673 3,392 3,820 EBITDA Adj margin (%) na 53.5 49.4 43.8 53.7 27.7 34.7 35.5 37.5 40.0 EBITDA lease Adj na 95 105 132 273 1,593 1,821 2,673 3,392 3,820 EBITDA lease Adj margin (%) na 53.5 49.4 43.8 53.7 27.7 34.7 35.5 37.5 40.0 EBITA Adj na 68 67 95 188 575 345 -81 312 580 EBITA Adj margin (%) na 38.3 31.3 31.5 37.1 10.0 6.6 -1.1 3.4 6.1 EBIT Adj na 68 67 95 188 575 345 -81 312 580 EBIT Adj margin (%) na 38.3 31.3 31.5 37.1 10.0 6.6 -1.1 3.4 6.1 Pretax profit Adj na 67 66 93 182 545 409 -105 292 560 Net profit Adj na 52 52 72 139 397 283 -108 216 414 Net profit to shareholders Adj na 52 51 72 139 397 283 -108 216 414 Net Adj margin (%) na 29.3 24.3 23.8 27.4 6.9 5.4 -1.4 2.4 4.3 Source: ABG Sundal Collier, Company data
24 June 2020 ABG Sundal Collier 19
Embracer Group
Cash Flow Statement (SEKm) na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e EBITDA na 95 105 132 273 1,593 1,821 2,673 3,392 3,820 Net financial items na -1 -1 -2 -6 -29 63 -24 -20 -20 Paid tax na -15 -14 -21 -43 -149 -126 -3 -76 -145 Non-cash items na 0 0 0 0 0 0 0 0 0 Cash flow before change in WC na 79 90 109 224 1,415 1,759 2,646 3,296 3,655 Change in WC na na 7 -26 -30 -294 -84 1,234 399 59 Operating cash flow na 112 97 84 194 1,121 1,675 3,680 3,695 3,713 CAPEX tangible fixed assets na 0 0 -3 -5 -140 -52 -75 -90 -95 CAPEX intangible fixed assets na -36 -71 -157 -305 -1,335 -1,653 -2,109 -2,439 -2,864 Acquisitions and disposals na 0 0 0 -91 -1,787 -890 -950 0 0 Free cash flow na 76 27 -76 -207 -2,142 -921 545 1,165 754 Dividend paid na 0 0 0 0 0 0 0 0 0 Share issues and buybacks na 0 0 0 598 1,448 0 0 0 0 Lease liability amortisation na 0 0 0 0 0 0 0 0 0 Other non cash items na -56 -22 189 -10 2,381 -427 -50 0 0 Decrease in net IB debt na na 5 113 381 1,688 -1,348 695 1,165 754 Balance Sheet (SEKm) na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Goodwill na 0 0 0 0 830 1,412 7,412 7,412 7,412 Other intangible assets na 75 104 229 571 2,877 4,521 3,876 3,235 2,858 Tangible fixed assets na 1 2 4 8 156 208 283 374 469 Right-of-use asset na 0 0 0 0 0 0 0 0 0 Total other fixed assets na 3 0 0 3 196 196 196 196 196 Fixed assets na 78 106 232 582 4,059 6,337 11,768 11,217 10,935 Inventories na 8 13 18 30 323 394 414 497 525 Receivables na 26 31 47 90 1,297 1,575 1,732 2,078 2,195 Other current assets na 0 0 0 0 0 0 0 0 0 Cash and liquid assets na 18 26 167 627 2,929 1,581 2,276 3,442 4,196 Total assets na 131 175 465 1,329 8,608 9,886 16,191 17,233 17,851 Shareholders equity na 63 92 357 1,114 6,379 7,393 12,285 12,501 12,915 Minority na 0 0 0 0 0 0 0 0 0 Total equity na 63 92 357 1,114 6,379 7,393 12,285 12,501 12,915 Long-term debt na 0 0 29 110 918 918 918 918 918 Pension debt na 0 0 0 0 0 0 0 0 0 Convertible debt na 0 0 0 0 0 0 0 0 0 Leasing liability na 0 0 0 0 0 0 0 0 0 Total other long-term liabilities na 0 0 0 0 0 0 0 0 0 Short-term debt na 0 0 0 0 0 0 0 0 0 Accounts payable na 68 84 80 105 1,311 1,575 2,787 3,614 3,818 Other current liabilities na 0 0 0 0 0 0 200 200 200 Total liabilities and equity na 131 175 465 1,329 8,608 9,886 16,191 17,233 17,851 Net IB debt na -21 -26 -139 -520 -2,207 -859 -1,554 -2,720 -3,474 Net IB debt excl. pension debt na -21 -26 -139 -520 -2,207 -859 -1,554 -2,720 -3,474 Net IB debt excl. leasing na -21 -26 -139 -520 -2,207 -859 -1,554 -2,720 -3,474 Capital invested na 43 66 218 594 4,172 6,534 10,731 9,782 9,441 Working capital na -33 -40 -15 15 309 394 -840 -1,239 -1,298 EV breakdown na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Market cap. diluted (m) na na na 797 2,093 4,525 22,083 46,544 46,544 46,544 Net IB debt Adj na -18 -26 -139 -517 -2,011 -663 -1,358 -2,523 -3,278 Market value of minority na 0 0 0 0 0 0 0 0 0 Reversal of shares and participations na 0 0 0 0 0 0 0 0 0 Reversal of conv. debt assumed equity na 0 0 0 0 0 0 0 0 0 EV na na na 658 1,576 2,514 21,421 45,186 44,021 43,266 Capital efficiency na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Total assets turnover (%) na na 139.0 94.3 56.6 115.8 56.8 57.8 54.1 54.4 Working capital/sales (%) na na -17.2 -9.1 0.1 2.8 6.7 -3.0 -11.5 -13.3 Financial risk and debt service na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Net debt/equity na -0.33 -0.28 -0.39 -0.47 -0.35 -0.12 -0.13 -0.22 -0.27 Net debt/market cap na na na -0.23 -0.37 -0.43 -0.04 -0.03 -0.06 -0.07 Equity ratio (%) na 48.2 52.3 76.7 83.8 74.1 74.8 75.9 72.5 72.3 Net IB debt adj./equity na -0.28 -0.28 -0.39 -0.46 -0.32 -0.09 -0.11 -0.20 -0.25 Current ratio na 0.77 0.83 2.92 7.11 3.47 2.25 1.48 1.58 1.72 EBITDA/net interest na 98.25 177.17 62.47 44.05 54.55 -28.72 111.37 169.61 191.00 Net IB debt/EBITDA na -0.22 -0.24 -1.05 -1.91 -1.39 -0.47 -0.58 -0.80 -0.91 Net IB debt/EBITDA lease Adj na -0.22 -0.24 -1.05 -1.91 -1.39 -0.47 -0.58 -0.80 -0.91 Interest cover na 52.96 106.56 44.82 30.36 17.73 9.75 -3.37 12.67 23.38 Source: ABG Sundal Collier, Company data
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Embracer Group
Valuation and Ratios (SEKm) na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Shares outstanding adj. na 60 60 61 74 94 312 372 372 372 Fully diluted shares Adj na 60 60 72 79 94 312 372 372 372 EPS na 0.87 0.85 1.00 1.76 4.22 0.91 -0.29 0.58 1.11 Dividend per share Adj na 0 0 0 0 0 0 0 0 0 EPS Adj na 0.87 0.85 1.00 1.76 4.22 0.91 -0.29 0.58 1.11 BVPS na 1.05 1.53 5.83 15.07 67.86 23.70 32.99 33.57 34.69 BVPS Adj na -0.19 -0.21 2.09 7.34 28.43 4.68 2.68 4.98 7.10 Net IB debt / share na -0.3 -0.4 -2.3 -7.0 -23.5 -2.8 -4.2 -7.3 -9.3 Share price na na na 11.07 26.42 48.13 70.78 125.00 125.00 125.00 Market cap. (m) na na na 676 1,953 4,525 22,083 46,544 46,544 46,544 Valuation na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e P/E na na na 11.1 15.0 11.4 78.0 -431.6 215.7 112.4 EV/sales na na na 2.18 3.11 0.44 4.08 6.00 4.87 4.53 EV/EBITDA na na na 5.0 5.8 1.6 11.8 16.9 13.0 11.3 EV/EBITA na na na 6.9 8.4 4.4 62.1 -558.8 141.3 74.7 EV/EBIT na na na 6.9 8.4 4.4 62.1 -558.8 141.3 74.7 Dividend yield (%) na na na 0 0 0 0 0 0 0 FCF yield (%) na na na -9.5 -9.9 -47.3 -4.2 1.2 2.5 1.6 Lease adj. FCF yield (%) na na na -9.5 -9.9 -47.3 -4.2 1.2 2.5 1.6 P/BVPS na na na 1.90 1.75 0.71 2.99 3.79 3.72 3.60 P/BVPS Adj na na na 5.29 3.60 1.69 15.12 46.66 25.10 17.59 P/E Adj na na na 11.1 15.0 11.4 78.0 -431.6 215.7 112.4 EV/EBITDA Adj na na na 5.0 5.8 1.6 11.8 16.9 13.0 11.3 EV/EBITA Adj na na na 6.9 8.4 4.4 62.1 -558.8 141.3 74.7 EV/EBIT Adj na na na 6.9 8.4 4.4 62.1 -558.8 141.3 74.7 EV/cap. employed na na na 1.7 1.3 0.3 2.6 3.4 3.3 3.1 Investment ratios na 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Capex/sales na 20.2 33.1 52.9 61.1 25.6 32.5 29.0 28.0 31.0 Capex/depreciation na 132.6 183.2 427.8 367.6 144.9 115.6 79.3 82.1 91.3 Capex tangibles/tangible fixed assets na 0 0 72.4 60.5 90.2 25.2 26.6 24.2 20.3 Capex intangibles/definite intangibles na 48.1 67.5 68.7 53.5 46.4 36.6 54.4 75.4 100.2 Depreciation on intangibles/definite intangibles na 36.3 36.8 16.3 14.8 35.4 32.6 71.0 95.2 113.4 Depreciation on tangibles/tangibles na 0 0 0 0 0 0 0 0 0 Source: ABG Sundal Collier, Company data
24 June 2020 ABG Sundal Collier 21
EmbracerEmbracer Group Group
Analyst certification I/We, 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.
Important Company Specific Disclosure ssss The following disclosures relate to the relationship between ABG Sundal Collier and its affiliates and the companies covered by ABG Sundal Collier referred to in this research report.
Unless disclosed in this section, ABG Sundal Collier has no required regulatory disclosures to make in relation to an ownership position for the analyst(s) and members of the analyst's household, ownership by ABG Sundal Collier, ownership in ABG Sundal Collier by the company(ies) to whom the report(s) refer(s) to, market making, managed or co-managed public offerings, compensation for provision of certain services, directorship of the analyst, or a member of the analyst's household, or in relation to any contractual obligations to the issuance of this research report.
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 knows or has reason to know at the time of the publication of this report.
Production of report: 24/06/2020 19:11 CET. All prices are as of market close on 23 June, 2020 unless otherwise noted.
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EmbracerEmbracer Group Group
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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EmbracerEmbracer Group Group
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 Oil & Gas Capital Goods John Olaisen +47 22 01 61 87 Anders Idborg +46 8 566 286 74 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Olof Cederholm +46 8 566 286 22 Eirik Thune Øritsland +47 22 01 61 40 Karl Bokvist +46 8 566 286 33 Oskar Vikström +46 8 566 286 63 Oil Service John Olaisen +47 22 01 61 87 Chemicals Haakon Amundsen +47 22 01 60 25 Martin Melbye +47 22 01 61 37 Lukas Daul +47 22 01 61 39 Bengt Jonassen +47 22 01 60 98 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Petter Nyström +47 22 01 61 35 Eirik Thune Øritsland +47 22 01 61 40
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Rickard Anderkrans +46 8 566 286 73 Telecom Operators + Telecom equipment Viktor Sundberg +46 8 566 286 41 Peter Kurt Nielsen +44 207 905 5631 Victor Forssell +46 8 566 286 92 Jannick Lindegaard Denholt +45 35 46 30 13 Utilities Benjamin Silverstone +45 35 46 30 11 Petter Nyström +47 22 01 61 35 Oskar Vikström +46 8 566 286 63 lnvestment Companies
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