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Read Full Report (PDF) Equity Research – 18 November 2020 07:18 CET Embracer Group Fast comment Estimate beat and 13 acquisitions Company-sponsored research: Not rated Adj. EBIT SEK 653m, +18.1% vs. ABG, +20.9% vs. cons Share price (SEK) 16/11/2020 170.0 13 acquisitions, adds ~12% to next FY adj. EBIT IT, Sweden Consensus could raise next FY adj. EBIT by 15-17% EMBRACB.ST /EMBRACB ST Q2’20/21e details MCap (SEKm) 71,594 Embracer delivered a strong quarter today, which beat consensus MCap (EURm) 7,010 expectations, with an Adj. EBIT of SEK 653m, +18.1% vs. ABGSCe and Net debt (EURm) -789 +20.9% vs. consensus. Reported net sales were SEK 2,383m, +11.1% vs. ABGSCe and +15.5% vs. consensus. The Games segment saw No. of shares (m) 421 revenues of SEK 1,495m, and as such represented 62.7% of total Free float (%) 60 revenues, contributing to the strong profitability in the quarter. The Av. daily volume (k) 2,708 Games segment grew 61% organically y-o-y in the quarter, driven by new releases and back-catalogue, but also by GaaS revenues from titles Next event Q2 report: 18 Nov like Satisfactory, Wreckfest and Deep Rock Galactic. Looking ahead, management expects the current FY to feature new game releases with development costs in the SEK 1.0-1.1bn range. Approximately SEK 150- 175 in Q3, but SEK 300-350m in Embracers Q4, driven by an unnamed title from THQ Nordic, which likely means Biomutant. The adj. EPS amounted to SEK 1.84 per share, growing ~125% y-o-y. Consensus adj. EBIT revisions and acquisitions We can see consensus making positive estimate revisions to Adj. EBIT for the next FY, 21/22e, of approximately 15-17% on the back of the report and the acquisitions. A total of 13 acquisitions has been announced, ranging from mobile publishers via DECA Games, to PC developers like Purple Lamp Studios (developed SpongeBob Rehydrated) via THQ Nordic. The largest appears to by Polish developer Flying Wild Hog, with a team of 260, and an upfront price of USD 135m. In total, management expects the acquisitions to add SEK 850-1,050m in revenues, and SEK 300-400m in adj. EBIT to the next FY. Final thoughts Embracer has been on a very strong run this year, up ~147% YTD, driven by both accretive M&A, successful new game release and COVID- 19 tailwinds in terms of player spending and engagement. There is a conference call/webcast at 09:00 CET, dial-in: SE: +46851999383, UK: +443333009032, U.S.: +18335268383 link: https://tv.streamfabriken.com/embracer-group-q2-2020-2021 Analyst(s): Jesper Birch-Jensen Stefan Knutsson 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 Analyst Deviations vs. ABGSCe vs. FactSet consensus Deviation to estimates (SEKm) Actual Actual ABGSC Deviation Consensus Deviation Net sales Q2'19/20 Q2'20/21 Q2'20/21e SEKm % Q2'20/21e SEKm % Games - THQ Nordic 330 567 510 56.9 11.2% Games - Deep Silver 442 507 475 31.8 6.7% Games - Coffee Stain 45 130 110 19.9 18.1% Games - Saber Interactive n.a. 259 270 -10.9 -4.0% Games - DECA Games n.a. 33 30 Games Total 816 1,495 1,395 100.4 7.2% Partner Publishing/Film 444 888 750 137.8 18.4% Group 1,260 2,383 2,145 238.2 11.1% 2,063 320 15.5% COGS -635 -1,034 -973 -60.8 - Gross profit 625 1,349 1,172 177.4 15.1% 1,167 182 15.6% Operating costs -450 -759 -697 -61.9 - EBITDA 418 969 828 141.1 17.0% 844 125 14.8% Depreciation & amortization -342 -796 -820 24.4 - Adj. EBIT 241 653 553 99.8 18.1% 540 113 20.9% EBIT 76 174 8 165.5 2077.9% Net financials 3 90 -6 96.2 - Taxes -15 -36 -1 -35.3 n.a. Adj. Net profit 229 707 546 161.1 29.5% 499 208 41.8% Net profit 65 228 1 226.4 15561.0% -3 231 - EPS Adj. (SEK) 0.82 1.84 1.42 0.42 29.5% 1.25 0.59 46.8% EPS Basic (SEK) 0.23 0.59 0.00 0.6 15561.0% -0.03 0.6 - Net sales grow th y-o-y Q2'19/20 Q2'20/21 Q2'20/21 Percentage point Q2'20/21e Percentage point Games - THQ Nordic 165.4% 72.0% 54.7% 17.3 pp n.a. n.a. Games - Deep Silver 75.4% 14.7% 7.5% 7.2 pp n.a. n.a. Games - Coffee Stain n.a. 190.6% 146.1% 44.5 pp n.a. n.a. Games - Saber Interactive n.a. n.a. n.a. n.a. n.a. n.a. Games - DECA Games n.a. n.a. n.a. n.a. n.a. n.a. Games Total 105.1% 83.3% 71.0% 12.3 pp n.a. n.a. Partner Publishing/Film -50.5% 100.1% 69.1% 31.1 pp n.a. n.a. Group -1.0% 89.2% 70.3% 18.9 pp 63.8% 25.4 pp Margins Q2'19/20 Q2'20/21 Q2'20/21 Percentage point Q2'20/21e Percentage point Gross margin 49.6% 56.6% 54.6% 2.0 pp 56.6% 0.0 pp EBITDA margin 33.2% 40.7% 38.6% 2.1 pp 40.9% -0.3 pp Adj. EBIT margin 19.1% 27.4% 25.8% 1.6 pp 26.2% 1.2 pp EBIT margin 6.1% 7.3% 0.4% 6.9 pp 0.0% 7.3 pp Adj. Net margin 18.2% 29.7% 25.5% 4.2 pp 24.2% 5.5 pp Net margin 5.1% 9.6% 0.1% 9.5 pp -0.1% 9.7 pp Source: ABG Sundal Collier, FactSet, company data 18 November 2020 ABG Sundal Collier 2 Embracer Group SEKm 2018 2019 2020e 2021e 2022e Sales 5,754 5,249 8,474 10,035 10,770 Sales growth (%) 1,033.7 -8.8 61.4 18.4 7.3 EBITDA 1,592 1,821 3,353 4,060 4,440 EBITDA margin (%) 27.7 34.7 39.6 40.5 41.2 EBIT adj 880 1,033 2,294 2,919 3,289 EBIT adj margin (%) 15.3 19.7 27.1 29.1 30.5 Pretax profit 545 409 114 609 829 EPS rep 4.22 0.91 0.09 1.07 1.46 EPS growth (%) 140.3 -78.5 -89.8 1,060.5 36.2 EPS adj 7.47 3.11 5.14 6.51 7.25 DPS 0 0 0 0 0 EV/EBITDA (x) 1.6 11.8 18.9 15.3 13.7 EV/EBIT adj (x) 2.9 20.7 27.7 21.2 18.6 P/E (x) 11.4 78.0 1,843.5 158.9 116.6 P/E adj (x) 6.4 22.8 33.1 26.1 23.4 EV/sales (x) 0.4 4.1 7.5 6.2 5.7 FCF yield (%) -47.4 -8.4 0.0 2.1 1.3 Dividend yield (%) 0 0 0 0 0 Net IB debt/EBITDA -1.4 -0.5 -2.5 -2.4 -2.4 Lease adj. FCF yld (%) -47.4 -8.4 0.0 2.1 1.3 Lease adj. ND/EBITDA -1.2 -0.3 -1.5 -1.5 -1.6 18 November 2020 ABG Sundal Collier 3 Embracer 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 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.
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