Embracer: Stable outlook for 2024/25E
Research Update
2024-05-27
07:51
Analyst Q&A
Closed
Hjalmar Ahlberg answered 3 questions.
Redeye updates on Embracer following Q4-results where adjusted EBIT was in line with our expectations while topline was softer. The company’s guidance for 2024/25E was largely in line with our expectations and we have made limited changes to our estimates.
Hjalmar Ahlberg
Tomas Otterbeck
Embracer reported sales of SEK8,874m and adjusted EBIT of SEK1,426m which can be compared to our forecast of SEK9,723m and SEK1,437m, respectively. Looking at adjusted EBIT per segment, PC/Console was close to our estimate while Mobile was stronger and Tabletop softer than expected. While EBITDAC was close to our forecast, net debt increase slightly while we had expected a sequential decline.
Looking into 2024/25E, Embracer expects adjusted EBIT to be similar to 2023/24, while EBITDAC is expected to improve materially. This was largely in line with our expectations, although we have shifted our mix with a larger contribution from Mobile and a softer contribution from PC/Console. The company will likely see a soft H1 with limited releases while H2 should be strong where Q3 is expected to see a record high value of completed games.
With the guidance for adjusted EBIT in 2024/25E being close to our expectations, we have made limited changes to our forecasts. Our DCF-based valuation range is trimmed slightly with a new base case of SEK37 (SEK38) which implies an EV/EBIT adj. of 8-9x 2024/25-26E while it is currently trading at 6-7x EV/EBIT adj. of 8-9x 2024/25-26E. Our SOP-valuation implies a fair value range of SEK32-56 with an average value of SEK44.
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Net Sales | 37,665.0 | 42,205.0 | 40,107.7 | 42,215.4 | 44,849.1 |
| EBITDA | 9,787.0 | 11,377.0 | 11,716.8 | 12,719.0 | 14,154.1 |
| EBIT | 6,367.0 | 7,063.0 | 7,016.8 | 7,653.1 | 8,772.2 |
| EBIT Margin | 16.9% | 16.7% | 17.5% | 18.1% | 19.6% |
| Net Income | 5,515.0 | 5,193.0 | 4,758.3 | 5,563.3 | 6,535.1 |
| EV/Sales | 2.2 | 1.1 | 1.2 | 1.1 | 0.9 |
| EV/EBITDA | 8.4 | 4.2 | 4.3 | 3.6 | 3.0 |
| EV/EBIT | 12.9 | 6.8 | 7.1 | 6.0 | 4.8 |
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.
Disclosures and disclaimers