Embracer: Solid capex reduction support positive cash flow outlook

Research Update

2024-08-19

07:31

Analyst Q&A

Closed

Hjalmar Ahlberg answered 5 questions.

Redeye updates on Embracer after Q1-results which were overall close to our forecast, albeit with soft performance in PC/Console. The company saw solid capex reduction and while we slightly lower our forecasts we expect continued improvement of cash flow in the coming quarters.

Hjalmar Ahlberg

Tomas Otterbeck

Q1-results overall in line with forecasts

Embracer reported slightly lower topline than expected while EBIT was in line with our forecast. However, the performance per segment was mixed where PC/Console was softer than expected while Mobile was stronger than expected.

Solid capex reduction

Embracer made strong progress on capex reduction, coming in at SEK1.1bn in Q1 2024/25, which was lower than our forecast of SEK1.4bn and a clear improvement compared to SEK1.6bn in Q4 2023/24. This supports our expectations of improved cash generation in the coming quarters and continued reduction of net debt.

Slightly trimmed estimates, valuation unchanged

While Q1-results was close to our expectations, the new release date for Kingdom Come: Deliverance II has resulted in slightly lowered EBIT estimates which we lower by 2% for 2024/25E. Our longer term forecasts are largely unchanged and our valuation range is also unchanged where the base case stands at SEK37. Our SOP-valuation yields a valuation range of SEK31-54 (previously SEK32-56).

Key financials

SEKm202220232024e2025e2026e
Net Sales37,665.042,205.039,182.341,234.843,784.3
EBITDA9,787.011,377.011,445.612,477.513,861.1
EBIT6,367.07,063.06,804.67,529.38,607.0
EBIT Margin16.9%16.7%17.4%18.3%19.7%
Net Income5,515.05,193.04,154.15,461.86,399.6
EV/Sales2.21.11.11.00.8
EV/EBITDA8.44.23.83.12.6
EV/EBIT12.96.86.45.24.1

Q1-results overall in line with forecasts

Embracer reported topline of SEK7,932m and adjusted EBIT of SEK828m while we expected SEK8,200m and SEK823m, respectively. The softer-than-expected topline was mainly due to EES, which had few releases during the quarter, which also resulted in a lower-than-expected EBIT for the segment. PC/Console saw stronger than expected topline, driven by back catalogue and other revenue while EBIT was somewhat softer than expected. Mobile continues to outperform our expectations as it again reported stronger-than-expected profitability. Tabletop reported slightly lower revenue and EBIT with profitability largely as expected. The company made strong progress on capex reduction, coming in at SEK1.1bn which was lower than our forecast of SEK1.4bn and a clear improvement compared to SEK1.6bn in Q4 2023/24. The table below summarizes our forecasts compared to the outcome.

Disclosures and disclaimers

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