sign in sign up
<<
Home , Darksiders, Deep Silver, Goat Simulator, JoWooD, Koch Media, Nordic Games

Equity Research - 20 February 2019 16:56 CET

THQ Nordic Reason: Post-results comment Company sponsored research A stronger THQ emerges following Q4’18 Not rated

 Q4’18 in line with ABGSCe Estimate changes (%)  Acquisitions strengthen THQ Nordic 2018e 2019e 2020e  Exodus off to flying start Sales 5.3% 6.3% 5.2% EBIT (rep) 9.1% 0.6% 0.4% Q4 vs. ABGSCe EPS (rep) 9.5% 0.8% 0.5% Q4’18 net sales came in at SEK 1,380m, representing a y-o-y growth rate Source: ABG Sundal Collier of 441%, driven by the acquisition of and 3 sales. Share price (SEK) 19/02/2019 1 9 9 .0 Reported sales were 3.8% above our estimate of SEK 1,330m. Reported EBIT was SEK 152m, corresponding to an EBIT margin of 11%, which was Technology Hardware & Equipment, 4.6% below our estimated EBIT of SEK 159m. Looking specifically at the THQNb.ST/THQNb.ST THQ Nordic games segment, which developed Darksiders 3, reported Q4 sales were SEK 351.9m, 4.9% below our estimate of SEK 370m and MCap (SEKm) 16,388 based on 800k Darksiders 3 copies sold in Q4’18. Total development and MCap (EURm) 1,548.8 marketing costs for Darksiders 3 have nonetheless been recouped. Net debt (EURm) 35 Acquires and 18POINT2 In conjunction with the Q4 earnings, THQ announced two new No. of shares (m) 82.4 acquisitions: Warhorse Studios and 18POINT2. Warhorse Studios is a Free float (%) 46.2 leading game developer based in , behind the successful award- Av. daily volume (k) 360.7 winning title Kingdom Come: Deliverance. 18POINT2 is one of Australia’s leading publishing partners of games and products. We have raised our Next event Q4 report: 22 May estimates to reflect these acquisitions, as well as the strong pipeline of upcoming releases in the Partner Publishing/Film segment. Further Performance

information about the acquisitions can be found inside this report. 900 800 Metro Exodus 700 600 Metro Exodus seems to be off to a flying start, with the PC version 500 achieving a score of 84, with PS4 and One not far 400 300 behind. Unofficial sales estimates have begun to emerge, with the game 200 reaching number two on UK Charts, indicating that physical sales for 100

Metro Exodus are 50% higher than the previous instalment in the Metro 0

Jul 17 Jul

Jul 18 Jul

Jan 17 Jan

Jan 18 Jan

Jan 19 Jan

Mar 17 Mar

Mar 18 Mar

Nov 16 Nov

Sep 17 Sep

Nov 17 Nov

Sep 18 Sep

Nov 18 Nov May 17 May universe: Metro Last Light. We estimate that about 1m copies will be sold 18 May during Q5’18/Q1’19 (current financial year has been extended due to THQ Nordic OMX STH PI change to split year), and that the segment will reach total 1m 3m 12m sales of SEK 595m. Furthermore, contenders to Metro Exodus seem to Absolute (%) 17.1 12.9 42.3 be performing weaker than expected, with Crackdown reaching a OMX STH PI (%) 5.1 7.6 4.5 Metacritic score of 58 and Far Cry New Dawn posting a score of 73. We Source: FactSet believe this is likely to turn gamers’ eyes towards Metro Exodus. Lead analyst: Stefan Knutsson Erik Moberg Jesper Birch-Jensen SEKm 2016 2017 2018e 2019e 2020e 2018e 2019e 2020e Sales 302 508 5,624 5,390 5,670 P/E (x) 44.2 34.3 27.4 EBITDA 132 273 1,319 1,486 1,700 P/E adj (x) 44.2 34.3 27.4 EBITDA margin (%) 43.8 53.7 23.5 27.6 30.0 P/BVPS (x) 5.03 4.39 3.78 EBIT adj 95 188 560 704 878 EV/EBITDA (x) 14.2 12.5 10.7 EBIT adj margin (%) 31.5 37.1 10.0 13.1 15.5 EV/EBIT adj (x) 33.5 26.3 20.7 Pretax profit 93 182 535 680 854 EV/sales (x) 3.34 3.43 3.21 EPS rep 1.00 1.76 4.51 5.79 7.27 ROE adj (%) 17.6 13.6 14.8 EPS adj 1.00 1.76 4.51 5.79 7.27 Dividend yield (%) 0 0 0 Sales growth (%) 41.8 68.1 1,008.0 -4.2 5.2 FCF yield (%) -9.1 1.5 1.7 EPS growth (%) 17.0 75.8 156.5 28.6 25.5 Net IB debt/EBITDA 0.3 0.1 -0.1 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 Koch Media 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.

Sales distribution, 2018, SEKm Business area breakdown, 2018, SEKm

1,200 2,500

1,000 2,000

800 1,500

600 1,000 400 500 200 0 0 THQ Nordic Deep Silver 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

7.5 6.0 7.0 5.5 6.5

5.0 6.0

5.5 4.5 5.0 4.0 4.5

3.5 4.0

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

20 February 2019 ABG Sundal Collier 2

THQ Nordic

Deviation table

Source: ABG Sundal Collier, company data

20 February 2019 ABG Sundal Collier 3

THQ Nordic

Forecast changes

We have revised our estimates for the upcoming years to include the contribution of Warhorse Studios, which will be included in the Deep Silver games segment, and 18POINT2, which will contribute to the Partner Publishing/Film segment. It should be noted that Warhorse Studios’s net revenue for ’18 was driven purely by the release of Kingdom Come: Deliverance, and thus we do not expect Warhorse Studios’s contribution to Deep Silver during ’19 to reach those levels. The upcoming DLC for Kingdom Come: Deliverance, which is due to be released in ’19, should however make a contribution.

We have increased our estimates for the Publishing/Film segment for Q5’18/Q1’19 due to the strong pipeline of upcoming releases. More information regarding the pipeline can be found on the following pages.

Furthermore, the new metric Operational EBIT has been added to our estimates, given that management believes it to be a better measure of THQ’s underlying operational performance. Operational EBIT excludes amortization of acquisition- related goodwill, surplus values of specific business areas (currently Partner Publishing and Film) and IP values (trademarks, patents, copyrights, etc).

Source: ABG Sundal Collier, company data

20 February 2019 ABG Sundal Collier 4

THQ Nordic

THQ Nordic in short

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 Warhorse Studios, 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 , Darksiders 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 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 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.

20 February 2019 ABG Sundal Collier 5

THQ Nordic

Market overview

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 % Global games market, segments, USDbn

200 250 25% 180

160 200 20% 174 140 161 75 66 148 120 58 150 135 15% 50 122 100 44 17 101 28 16 80 15 100 10% 13 10 12 60 47 38 41 43 32 33 40 50 5% 3 3 2 5 5 4 20 25 28 30 31 32 33 0 0% 0 2016 2017 2018 2019e 2020e 2021e 2016 2017 2018 2019e 2020e 2021e Downloaded/Boxed PC Browser PC Console Tablet Smartphone Global games market y-o-y growth Source: ABG Sundal Collier, Newzoo, company data 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. 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 revenues. 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. However, recent developments in the PC and console segment, such as the free-to-play game Fortnite, developed by , has changed the landscape by achieving huge success by solely offering in-game purchases.

Gaming revenue, top 5 countries, USDbn Online population, top 5 countries, mn

40 900 850 802 34 789 35 800 740 32 700 30 28 25 24 24 600 25 22 22 500 20 18 400 15 12 12 13 283 294 300 261 265 10 200 6 120 121 4 4 5 116 118 4 4 4 4 71 72 73 76 5 100 44 45 47 48

0 0 China United States Japan South Korea Germany China United States Japan South Korea Germany

2015 2016 2017 2018 2015 2016 2017 2018

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

20 February 2019 ABG Sundal Collier 6

THQ Nordic

Pipeline

At the end of Q4’18, THQ had 77 game projects in development, of which 29 have already been announced. 25 new projects were initiated during Q4’18 and a total of 11 were released. For the upcoming quarter, the Deep Silver- developed AAA-title Metro Exodus will play a major role, while other important upcoming releases include , and Deep Rock Galactic.

Announced releases as of February 13th, 2019

Source: ABG Sundal Collier, company data

In regards to the Partner Publishing/Film segment, the first quarter of 2019 holds several notable upcoming releases from THQ’s business partners. Upcoming releases in Q5’18/Q1’19 include Resident Evil 2 by , Kingdom Hearts III by Square Enix, Monster Energy Supercross 2 by Milestone, Dirt Rally 2.0 by Codemasters, Devil May Cry 5 by Capcom, Tropico 6 by Kalypso, Dead or Alive 6 by Koei, Total War: Three Kingdoms by .

20 February 2019 ABG Sundal Collier 7

THQ Nordic

Warhorse Studios

In conjunction with the release of THQ’s Q4’18 earnings, the company revealed the acquisition of Warhorse Studios, a leading game developer behind the successful award-winning title Kingdom Come: Deliverance.

Warhorse Studios Warhorse Studios is one of the leading independent game development studios in Europe, headquartered in Prague, Czech Republic. Warhorse was founded in 2011 by Dan Vávra, the creator of Mafia and Mafia 2, and Martin Klima, formerly of ALTAR, which developed the games Original War and the UFO trilogy. The founders, together with their team of experienced industry veterans, have an impressive track record of developing dozens of award-winning games. In total, their past titles have sold over 11 million copies, with their latest global success Kingdom Come: Deliverance, which was released in February 2018, having sold over 2 million copies.

Kingdom Come: Deliverance started as a project crowdfunded by a Kickstarter campaign, where over 35,000 fans helped fund the game and were able to follow the game development as it proceeded. The final product would go on to receive several awards, amongst them Best RPG of the year by Game Critics Awards and Best PC Game of the year by .

Warhorse’s projects tend to draw from the team’s experiences from established games like Mafia, Operation Flashpoint, ARMA and UFO Aftershock in order to create games with an , strong storyline and realistic design.

Source: ABG Sundal Collier, company data

Warhorse Studios was owned by the founders, Daniel Vávra and Martin Klíma, and an external financial investor. Both founders will remain in their current roles, and Martin Frývalský will continue in his role as CEO of Warhorse. Warhorse will continue to act as an independent studio under Koch Media after the acquisition.

20 February 2019 ABG Sundal Collier 8

THQ Nordic

18POINT2

In conjunction with the Q4’18 earnings release, THQ also revealed the acquisition of the Australian publishing partner 18POINT2.

18POINT2 18POINT2 is one of Australia’s leading publishing partners of games products and is considered to be one of the most experienced and reputable teams on the Australian market. The company acts as partner to leading international brands like Sony, , Milestone and Warner Brothers, with access to the entire retail market through collaborations with , Target and EBGames, among others. Roger Clarke, who previously held executive positions at Warners Bros. Home Entertainment Group, founded 18POINT2 in 2016, and the company today has eight employees.

Through 18POINT2, THQ Nordic and Koch Media will gain access to an established platform on a growing market. In turn, this will allow local Australian game developers to gain access to THQ Nordic’s global channels. The acquisition of 18POINT2 will also provide THQ Nordic with the opportunity to launch current portfolios of gaming products on a new market, and give Koch Media’s partners within development, publishing and distribution a chance to further develop collaborations with local publishing experts.

Source: ABG Sundal Collier, company data

20 February 2019 ABG Sundal Collier 9

THQ Nordic

Breakdown of forecasts

Detailed PnL, SEKm

Source: ABG Sundal Collier, company data

Net sales & EBIT margin, SEKm Business area sales, SEKm

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

Physical sales, SEKm Digital sales, SEKm

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

20 February 2019 ABG Sundal Collier 10

THQ Nordic

Valuation & Peer table

Global gaming peer group

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

EV/EBIT NTM P/E NTM

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

EV/EBIT & vs peer average P/E & vs peer average

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

20 February 2019 ABG Sundal Collier 11

THQ Nordic

Income Statement (SEKm) Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018e Sales 82 86 85 255 633 837 1,273 1,381 COGS -25 -24 -30 -69 -320 -466 -895 -838 Gross profit 57 61 55 186 313 371 377 542 Other operating items -15 -22 -20 -30 -87 -165 -163 -216 EBITDA 42 40 35 156 226 207 215 326 Depreciation on tangibles 0 0 0 0 0 0 0 0 Depreciation on intangibles -10 -9 -11 -54 -119 -154 -124 -174 EBITA 32 30 24 102 107 53 91 152 Goodwill impairment charges 0 0 0 0 0 0 0 0 Other impairment and amortisation 0 0 0 0 0 0 0 0 EBIT 32 30 24 102 107 53 91 152 Interest Net -0 -0 -1 -5 -9 -4 -3 -4 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 31 30 23 97 98 49 88 148 Tax -8 -7 -4 -24 -17 -15 -23 -34 Net profit 24 23 19 73 81 33 65 114 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 24 23 19 73 81 33 65 114 EPS 0.33 0.32 0.24 0.93 1.02 0.38 0.74 1.32 EPS Adj 0.33 0.32 0.24 0.93 1.02 0.38 0.74 1.32 Total extraordinary items after tax 0 0 0 0 0 0 0 0 Tax rate (%) 25.3 22.6 18.8 24.4 17.3 31.2 25.7 23.1 Gross margin (%) 70.1 71.6 64.9 72.9 49.5 44.4 29.7 39.3 EBITDA margin (%) 51.2 46.4 40.8 61.2 35.7 24.7 16.9 23.6 EBITA margin (%) 38.9 35.5 28.4 39.9 16.9 6.3 7.1 11.0 EBIT margin (%) 38.9 35.5 28.4 39.9 16.9 6.3 7.1 11.0 Pretax margin (%) 38.4 35.1 27.7 38.0 15.5 5.8 6.9 10.8 Net margin (%) 28.7 27.1 22.5 28.7 12.8 4.0 5.1 8.3 Growth rates Y/Y Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018e Sales growth (%) 89.9 62.2 8.8 99.3 672.8 878.8 1,403.1 440.6 EBITDA growth (%) 81.8 71.2 36.4 157.4 439.0 421.1 521.3 108.6 EBIT growth (%) 124.2 113.3 50.3 101.5 236.6 73.0 278.1 49.1 Net profit growth (%) 119.7 119.5 50.1 93.2 244.4 44.1 241.9 55.6 EPS growth (%) 119.7 119.5 50.1 93.2 244.4 44.1 241.9 55.6 Adj earnings numbers Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018e EBITDA Adj 42 40 35 156 226 207 215 326 EBITDA Adj margin (%) 51.2 46.4 40.8 61.2 35.7 24.7 16.9 23.6 EBITA Adj 32 30 24 102 107 53 91 152 EBITA Adj margin (%) 38.9 35.5 28.4 39.9 16.9 6.3 7.1 11.0 EBIT Adj 32 30 24 102 107 53 91 152 EBIT Adj margin (%) 38.9 35.5 28.4 39.9 16.9 6.3 7.1 11.0 Pretax profit Adj 31 30 23 97 98 49 88 148 Net profit Adj 24 23 19 73 81 33 65 114 Net profit to shareholders Adj 24 23 19 73 81 33 65 114 Net Adj margin (%) 28.7 27.1 22.5 28.7 12.8 4.0 5.1 8.3 Source: ABG Sundal Collier, Company data

20 February 2019 ABG Sundal Collier 12

THQ Nordic

Income Statement (SEKm) na na na 2014 2015 2016 2017 2018e 2019e 2020e Sales na na na 178 213 302 508 5,624 5,390 5,670 COGS na na na -58 -70 -119 -148 -3,411 -3,088 -3,143 Gross profit na na na 121 143 183 360 2,212 2,302 2,527 Other operating items na na na -25 -38 -51 -87 -893 -816 -827 EBITDA na na na 95 105 132 273 1,319 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 -759 -782 -822 EBITA na na na 68 67 95 188 560 704 878 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 95 188 560 704 878 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 93 182 535 680 854 Tax na na na -15 -14 -21 -43 -122 -150 -188 Net profit na na na 52 52 72 139 413 531 666 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 72 139 413 531 666 EPS na na na 0.87 0.85 1.00 1.76 4.51 5.79 7.27 EPS Adj na na na 0.87 0.85 1.00 1.76 4.51 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 22.9 22.0 22.0 Gross margin (%) na na na 67.7 67.1 60.6 70.9 39.3 42.7 44.6 EBITDA margin (%) na na na 53.5 49.4 43.8 53.7 23.5 27.6 30.0 EBITA margin (%) na na na 38.3 31.3 31.5 37.1 10.0 13.1 15.5 EBIT margin (%) na na na 38.3 31.3 31.5 37.1 10.0 13.1 15.5 Pretax margin (%) na na na 37.7 31.0 30.8 35.9 9.5 12.6 15.1 Net margin (%) na na na 29.3 24.3 23.8 27.4 7.3 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 1,008.0 -4.2 5.2 EBITDA growth (%) na na na na 10.4 26.0 106.0 383.9 12.6 14.4 EBIT growth (%) na na na na -2.3 42.7 98.1 197.7 25.6 24.7 Net profit growth (%) na na na na -0.7 39.1 93.4 196.4 28.6 25.5 EPS growth (%) na na na na -1.7 17.0 75.8 156.5 28.6 25.5 Profitability na na na 2014 2015 2016 2017 2018e 2019e 2020e ROE (%) na na na na 71.7 33.5 19.6 17.6 13.6 14.8 ROE Adj (%) na na na na 71.7 33.5 19.6 17.6 13.6 14.8 ROCE (%) na na na na 122.4 74.5 55.9 25.1 17.1 19.9 ROCE Adj(%) na na na na 122.4 74.5 55.9 25.1 17.1 19.9 ROIC (%) na na na na 96.0 57.7 42.7 19.4 13.4 15.5 ROIC Adj (%) na na na na 96.0 57.7 42.7 19.4 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 1,319 1,486 1,700 EBITDA Adj margin (%) na na na 53.5 49.4 43.8 53.7 23.5 27.6 30.0 EBITA Adj na na na 68 67 95 188 560 704 878 EBITA Adj margin (%) na na na 38.3 31.3 31.5 37.1 10.0 13.1 15.5 EBIT Adj na na na 68 67 95 188 560 704 878 EBIT Adj margin (%) na na na 38.3 31.3 31.5 37.1 10.0 13.1 15.5 Pretax profit Adj na na na 67 66 93 182 535 680 854 Net profit Adj na na na 52 52 72 139 413 531 666 Net profit to shareholders Adj na na na 52 51 72 139 413 531 666 Net Adj margin (%) na na na 29.3 24.3 23.8 27.4 7.3 9.8 11.7 Source: ABG Sundal Collier, Company data

20 February 2019 ABG Sundal Collier 13

THQ Nordic

Cash Flow Statement (SEKm) na na na 2014 2015 2016 2017 2018e 2019e 2020e EBITDA na na na 95 105 132 273 1,319 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 -122 -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 1,055 1,313 1,488 Change in WC na na na na 7 3 51 -515 64 -12 Operating cash flow na na na 60 110 99 179 540 1,377 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 -2,193 -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 -1,652 280 309 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 -948 280 309 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 3,410 3,724 4,069 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 3,772 4,087 4,432 Inventories na na na 0 0 0 0 0 0 0 Receivables na na na 35 44 65 120 1,950 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 26 167 627 616 895 1,205 Total assets na na na 131 175 465 1,329 6,338 6,496 7,195 Shareholders equity na na na 59 84 345 1,073 3,622 4,153 4,819 Minority na na na 0 0 0 0 0 0 0 Total equity na na na 59 84 345 1,073 3,622 4,153 4,819 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 1,530 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 6,338 6,496 7,195 Net IB debt na na na -16 -18 -156 -589 359 79 -230 Net IB debt excl. pension debt na na na -16 -18 -156 -589 359 79 -230 Capital invested na na na 43 66 189 485 3,981 4,232 4,589 Working capital na na na -33 -40 -43 -95 420 356 369 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 18,222 18,222 18,222 Net IB debt Adj na na na -13 -18 -156 -586 570 290 -19 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 18,792 18,512 18,203 Capital efficiency (%) na na na 2014 2015 2016 2017 2018e 2019e 2020e Total assets turnover (%) na na na na 138.9 94.3 56.6 146.7 84.0 82.8 Capital invested turnover (%) na na na na 391.4 236.7 150.7 251.8 131.2 128.5 Capital employed turnover (%) na na na na 391.4 236.7 150.7 251.8 131.2 128.5 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 15.5 24.9 20.7 Working capital/sales (%) na na na na -17.2 -13.8 -13.6 2.9 7.2 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 9.9 1.9 -4.8 Net debt/market cap (%) na na na na na -7.3 -12.9 2.4 0.4 -1.3 Equity ratio (%) na na na 44.8 48.0 74.2 80.8 57.2 63.9 67.0 Net IB debt adj./equity (%) na na na -22.3 -21.4 -45.2 -54.6 15.7 7.0 -0.4 Current ratio (%) na na na 77.3 82.6 214.5 347.7 167.7 208.1 232.1 EBITDA/net interest (%) na na na 9,520.0 17,716.7 6,246.8 4,405.6 5,203.6 6,313.4 7,168.4 Net IB debt/EBITDA (%) na na na -16.9 -17.2 -118.0 -215.9 27.2 5.3 -13.5 Interest cover (%) na na na 6,810.0 11,225.3 4,484.0 3,041.4 2,210.0 2,990.1 3,701.4 Source: ABG Sundal Collier, Company data

20 February 2019 ABG Sundal Collier 14

THQ Nordic

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 4.51 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 4.51 5.79 7.27 BVPS na na na 0.98 1.40 4.79 13.54 39.56 45.35 52.63 BVPS Adj na na na -0.27 -0.34 1.62 6.34 2.32 4.68 8.19 Net IB debt / share na na na -0.3 -0.3 -2.2 -7.4 3.9 0.9 -2.5 Share price na na na na na 33.20 79.25 199.00 199.00 199.00 Market cap. (m) na na na na na 2,391 6,279 18,222 18,222 18,222 Valuation na na na 2014 2015 2016 2017 2018e 2019e 2020e P/E na na na na na 33.2 45.1 44.2 34.3 27.4 EV/sales na na na na na 7.41 11.22 3.34 3.43 3.21 EV/EBITDA na na na na na 16.9 20.9 14.2 12.5 10.7 EV/EBITA na na na na na 23.5 30.3 33.5 26.3 20.7 EV/EBIT na na na na na 23.5 30.3 33.5 26.3 20.7 Dividend yield (%) na na na na na 0 0 0 0 0 FCF yield (%) na na na na na -2.5 -8.4 -9.1 1.5 1.7 P/BVPS na na na na na 6.93 5.85 5.03 4.39 3.78 P/BVPS Adj na na na na na 20.55 12.50 85.66 42.52 24.29 P/E Adj na na na na na 33.2 45.1 44.2 34.3 27.4 EV/EBITDA Adj na na na na na 16.9 20.9 14.2 12.5 10.7 EV/EBITA Adj na na na na na 23.5 30.3 33.5 26.3 20.7 EV/EBIT Adj na na na na na 23.5 30.3 33.5 26.3 20.7 EV/cap. employed na na na na na 11.8 11.7 4.7 4.4 4.0 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 39.0 20.4 20.6 Capex/depreciation na na na 143.5 178.0 427.6 839.2 288.9 140.2 141.9 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 64.3 29.5 28.7 Depreciation on intangibles/definite intangibles na na na 36.2 36.8 16.3 14.8 22.3 21.0 20.2 Depreciation on tangibles/tangibles na na na 0 0 0 0 0 0 0 Source: ABG Sundal Collier, Company data

20 February 2019 ABG Sundal Collier 15

THQTHQ Nordic Nordic

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.

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

mo

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: 20/02/2019 16:56 CET. All prices are as of market close on 19 February, 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 Collier 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.

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.

This research product has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination.

This report is provided solely for the information and use of professional investors, who are expected to make their own investment decisions without undue reliance on this report. The information contained herein does not apply to, and should not be relied upon by, retail clients. This report is for distribution only under such circumstances as may be permitted by applicable law. Research reports prepared by ABG Sundal Collier are for information purposes only. ABG Sundal Collier accepts no liability whatsoever for any losses arising from any use of this report or its contents. This report is not to be used or considered as an offer to sell, or a solicitation of an offer to buy. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but ABG Sundal Collier makes no representation as to its accuracy or completeness and it should not be relied upon as such. All opinions and estimates herein reflect the judgment of ABG Sundal Collier on the date of this report and are subject to change without notice. Past performance is not indicative of future results.

This research report does not, and does not attempt to contain everything material that there is to be said about THQ Nordic.

The compensation of our research analysts is determined exclusively by research management and senior management, but not including investment banking management. Compensation is not based on specific investment banking revenues, however, it is determined from the profitability of the ABG Sundal Collier Group, which includes earnings from investment banking operations and other business. Investors should assume that ABG Sundal Collier is seeking or will seek investment banking or other business relationships with the companies in this report. The research analyst(s) responsible for the preparation of this report may interact with trading desk and sales personnel and other departments for the purpose of gathering, synthesizing and interpreting market information. From time to time, ABG Sundal Collier and its affiliates and any shareholders, directors, officers or employees thereof may (I) have a position in, or otherwise be interested in, any securities directly or indirectly connected to the subject of this report, or (II) perform investment banking or other services for, or solicit investment banking or other services from, a company mentioned in this report. ABG Sundal Collier relies on information barriers to control the flow of information contained in one or more areas of ABG Sundal Collier, into other areas, units, groups or affiliates of ABG Sundal Collier.

Norway: ABG Sundal Collier ASA is regulated by the Financial Supervisory Authority of (Finanstilsynet); Sweden: ABG Sundal Collier AB is regulated by the Swedish Financial Supervisory Authority (Finansinspektionen); UK: This report is a communication made, or approved for communication in the UK, by ABG Sundal Collier Partners LLP, authorised and regulated by the Financial Conduct Authority in the conduct of its business. US: This report is being distributed in the United States in accordance with FINRA Rule 1050(f)(3)(B) by ABG Sundal Collier Inc., a FINRA member which accepts responsibility for its content. Research analysts are not registered/qualified as research analysts with FINRA or the NYSE, and are not associated persons of ABG Sundal Collier Inc. and therefore not subject to FINRA Rule 2241, the research analyst conflict rules. Research reports distributed in the U.S are intended solely for “major institutional investors”, as defined under Rule 15a-6 of the Securities Exchange Act of 1934. Each U.S major institutional investor that receives a copy of this research report by its acceptance represents that it agrees it will not distribute this research report to any other person. Any U.S. major institutional investor receiving this report who wishes to effect 20 February 2019 ABG Sundal Collier 16

THQTHQ Nordic Nordic

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.

Singapore: This report is distributed in Singapore by ABG Sundal Collier Pte Ltd, which is not licensed under the Financial Advisers Act (Chapter 110 of Singapore). In Singapore, this report may only be distributed to institutional investors as defined in Section 4A(1)(c) of the Securities and Futures Act (Chapter 289 of Singapore) (“SFA”), and should not be circulated to any other person in Singapore.

This report may not be reproduced, distributed or published by any recipient for any purpose whatsoever without the prior written express permission of ABG Sundal Collier. Additional information available upon request. If reference is made in this report to other companies and ABG Sundal Collier provides research coverage for those companies details regarding disclosures may be found on our website www.abgsc.com.

© Copyright 2019 ABG Sundal Collier ASA

20 February 2019 ABG Sundal Collier 17

THQTHQ Nordic Nordic

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

Capital Goods Oil & Gas Anders Idborg +46 8 566 286 74 John Olaisen +47 22 01 61 87 Olof Cederholm +46 8 566 286 22 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Karl Bokvist +46 8 566 286 33 Oil Service Chemicals John Olaisen +47 22 01 61 87 Martin Melbye +47 22 01 61 37 Haakon Amundsen +47 22 01 60 25 Bengt Jonassen +47 22 01 60 98 Lukas Daul +47 22 01 61 39 Petter Nyström +47 22 01 61 35 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Glenn Kringhaug +47 22 01 61 62 Online Gaming Construction & Real Estate Aksel Øverland Engebakken +47 22 01 61 11 Tobias Kaj +46 8 566 286 21 Erik Moberg +46 8 566 286 87 Bengt Jonassen +47 22 01 60 98 Stefan Knutsson +46 8 566 286 37 Philip Hallberg +46 8 566 286 95 Glenn Kringhaug +47 22 01 61 62 Pulp & Paper Laurits Louis Kjaergaard +45 35 46 30 12 Martin Melbye +47 22 01 61 37 Glenn Kringhaug +47 22 01 61 62 Consumer Goods Øystein Elton Lodgaard +47 22 01 60 26 Andreas Lundberg +46 8 566 286 51

Petter Nyström +47 22 01 61 35 Renewable Energy Michael Vitfell-Rasmussen +45 35 46 30 16 Casper Blom +45 35 46 30 15 Ludvig Kapanen +46 8 566 286 91 Petter Nyström +47 22 01 61 35

Credit Research Retail Alexander Jost +47 22 01 60 88 Andreas Lundberg +46 8 566 286 51 Rikard Magnus Braaten +47 22 01 60 86 Ludvig Kapanen +46 8 566 286 91 Andreas Johannessen +47 22 01 60 31 Haakon Amundsen +47 22 01 60 25 Seafood Eric Wahlström +46 8 566 286 25 Martin Kaland +47 22 01 60 67

Financials Services Magnus Andersson +46 8 566 294 69 Andreas Lundberg +46 8 566 286 51 Mads Thinggaard +45 35 46 30 18 Michael Vitfell-Rasmussen +45 35 46 30 16 Patrik Brattelius +46 8 566 286 64 Victor Forssell +46 8 566 286 92 Jan Erik Gjerland +47 22 01 61 16 Jonas Bru Lien +47 22 01 61 71 Shipping & Transport Dennis Anghelopoulos +47 22 01 60 37 Food & Beverages Casper Blom +45 35 46 30 15 Michael Vitfell-Rasmussen +45 35 46 30 16 Lukas Daul +47 22 01 61 39

Healthcare Telecom Operators Sten Gustafsson +46 8 566 286 93 Peter Kurt Nielsen +44 207 905 5631 Christopher W. Uhde +46 8 566 286 39 Daniel Thorsson +46 8 566 286 82 Utilities Glenn Kringhaug +47 22 01 61 62 Martin Melbye +47 22 01 61 37 Ole Henrik Bang-Andreasen +45 35 46 30 11 Petter Nyström +47 22 01 61 35

lnvestment Companies Small Caps Derek Laliberte +46 8 566 286 78 Daniel Thorsson +46 8 566 286 82

Johan Nilsson Wall +46 8 566 286 41 IT Laurits Louis Kjaergaard +45 35 46 30 12 Aksel Øverland Engebakken +47 22 01 61 11 Daniel Thorsson +46 8 566 286 82 André Thormann +45 35 46 30 19 Simon Granath +46 8 566 286 32

Media Aksel Øverland Engebakken +47 22 01 61 11 Derek Laliberte +46 8 566 286 78 Andreas Lundberg +46 8 566 286 51

Norway Sweden Denmark United Kingdom USA Germany Singapore Pb. 1444 Vika Box 7269 Forbindelsesvej 12, 10 Paternoster Row, 5th fl 850 Third Avenue, Suite 9-C Schillerstrasse 2, 5. OG 10 Collyer Quay NO-0115 SE-103 89 DK-2100 COPENHAGEN LONDON EC4M 7EJ NEW YORK, NY 10022 DE-60313 Ocean Financial Center Norway Sweden Denmark UK USA Germany #40-07, Singapore 049315 Tel: +47 22 01 60 00 Tel: +46 8 566 286 00 Tel: +45 35 46 61 00 Tel: +44 20 7905 5600 Tel. +1 212 605 3800 Tel +49 69 96 86 96 0 Tel +65 6808 6082 Fax: +47 22 01 60 60 Fax: +46 8 566 286 01 Fax: +45 35 46 61 10 Fax: +44 20 7905 5601 Fax. +1 212 605 3801 Fax +49 69 96 86 96 99

20 February 2019 ABG Sundal Collier 18