Embracer reported net sales of SEK8,874m and adjusted EBIT of SEK1,426m which can be compared to our forecast of SEK9,723m and SEK1,437m, respectively. The lower-than-expected topline was driven by PC/Console, Tabletop and EES while Mobile was close to our forecast. While PC/Console saw softer topline, adjusted EBIT was in line, implying improved profitability despite soft performance from some new releases in the quarter. The Tabletop segment continue to see solid YoY growth and margin improvement, albeit somewhat lower than we estimated. Mobile saw another quarter with strong profitability, despite an expected sequential decline driven by softer seasonality. As expected, EES had a soft quarter after seeing strong topline and profitability in Q1-Q3. Reported EBIT and net income was significantly lower than expected and included goodwill write-downs following the company’s annual impairment test. Cash flow was somewhat lower than expected with an adjusted EBITDA - Capex of SEK972m compared to our estimate of SEK1,146m. The company ended the quarter with a net debt of SEK16.4bn while the pro-forma net debt stood at SEK10.7bn-11.2bn. (including proceeds from divestments of Saber and Gearbox). The table below summarizes the Q4-results outcome compared to our forecasts.

Looking into 2024/25E, Embracer expects adjusted EBIT to be in line with the reported adjusted EBIT for 2023/24, while EBITDAC is expected to improve materially. Earnings are titled towards H2 on the back of the release schedule for PC/Console where 55% of completed games is expected in Q3 2024/25E. In total, Embracer expects the value of completed games to be SEK3.9bn for the year in total, suggesting around SEK2.1bn Q3 2024/25E. Key games in the release schedule includes Kingdom Come: Deliverance II and Killing Floor 3 which the company compares to the releases of Remnant II and Dead Island 2 during 2023/24. Coming to the near-term outlook, the company expects a soft Q1 for PC/Console given few releases during the quarter and it expects limited EBIT contribution for the segment in the quarter.

While PC/Console is more tilted towards H2 than 2023/24, we expect Mobile to continue seeing stable performance during the year. Still, profitability will likely come down somewhat from the very strong level seen in H2 2023/24 where EBIT-margin was around 37%. Embracer also indicates that it expects Mobile to see a similar performance to last year in Q1 2024/25E, suggesting an EBIT-margin of around 30%. The company furthermore expects Tabletop to stable YoY performance in Q1 while EES also have soft release schedule suggesting limited contribution in the quarter. Fur the full year, we expect Tabletop too see topline and EBIT growth while EES could likely see a slight decline owing to tough comps from 2023/24. In summary, we have made limited changes to adjusted EBIT for 2024/25E (-1%) albeit with results tilted towards H2 and an increased contribution from Mobile while PC/Console contribution is decreased.

Coming to the outlook for the following years, we have trimmed our estimates for 2025/26E (-4%) while we have slightly increased our estimates for 2026/27E (+2%). The lowered estimates for 2025/26E are due to somewhat softer expectations for PC/Console while the increase for 2026/27E comes on the back of increased expectations for EES, supported by the recently announced Lord of the Rings movies. The table below summarizes key financials for the group and per segment for 2022/23 to 2026-27E.

With limited changes to our estimate we also make limited changes to our valuation range. Still, net cash flow was somewhat softer than expected in Q4 and the company ended the year with a higher net debt than expected, which impacts the valuation. As such our new base case stands at SEK37 (SEK38) while the bull case is SEK53 (SEK55) and the bear case is SEK23 (SEK25). The table below summarizes growth and margin assumptions for the valuation scenarios.

In addition to our DCF-based valuation we have also continue to provide a SOP-valuation given the upcoming split-up of the group. As indicated by the table below, a SOP-valuation can yield a value of SEK32 to SEK56 per share depending on which multiples are applied. Coming to the valuation of peers, multiples vary widely for listed gaming companies (see peer table below SOP-valuation) and it remains to be seen how the market will value the new companies. In our view, Coffee Stain & Friends should see higher multiples compared to Embracer where we see MTG and Paradox as relevant peers while the global average multiple should also be a relevant metric. Middle Earth, which could likely have somewhat more volatile earnings could likely see a lower multiple closer to where Embracer trades today. Finally, we believe Asmodee should likely be valued close to peers such as Hasbro and Mattel.