Embracer: Solid balance sheet ahead of split-up
Research Update
2024-11-19
07:07
Analyst Q&A
Closed
Hjalmar Ahlberg answered 4 questions.
Redeye updates on Embracer following Q2-results which were lower than expected, owing mainly to soft performance in PC/Console. While the outlook for H2 was also softer than we expected, due to delayed PC/Console releases, the divestment of Easybrain surprised positively with an attractive price and provides a strong balance sheet for the upcoming split-up of the group.
Hjalmar Ahlberg
Tomas Otterbeck
Embracer reported lower than expected Q3-results with adjusted EBIT coming in around 6% below our estimate, driven by PC/Console and Mobile while Tabletop was above expectations. The company also updated its outlook for the year, where it now expects lower EBIT YoY owing to delayed releases in PC/Console.
While Q3-results were weaker than expected, the divestment of Easybrain was a positive surprise. The divestment is carried out at an attractive valuation (c9x EBIT) while it also significantly strengthens Embracer’s balance sheet ahead of the split-up. This will allow the new companies to have strong balance sheet and have better ability to execute on growth plans, which will be positive for the valuation of the split-up companies.
Redeye has updated estimates on the back of lowered expectations for PC/Console and the divestment of Easybrain. While our adjusted EBIT is down 19-20% for 2024/25-2026/27E on the back of the lowered estimates, our valuation is increased due to the attractive price for the Easybrain divestment. Our new base case is SEK40 (SEK37) which implies c9x 2025/26E adjusted EBIT while the share currently trades at 5x 2025/26E adjusted EBIT. We have also updated our SOP-valuation which now indicates a valuation range of SEK34-55 (previously SEK31-54).
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 42,862.0 | 48,131.0 | 39,851.9 | 38,996.3 | 41,366.3 |
| Revenue Growth | 118% | 12.3% | -17.2% | -2.1% | 6.1% |
| EBITDA | 9,787.0 | 11,377.0 | 9,929.1 | 10,027.5 | 11,193.9 |
| EBIT | 6,367.0 | 7,063.0 | 5,543.1 | 5,854.9 | 6,765.1 |
| EBIT Margin | 16.9% | 16.7% | 15.3% | 16.8% | 18.3% |
| Net Income | 5,515.0 | 5,193.0 | 2,867.2 | 4,449.6 | 5,196.0 |
| EV/Sales | 2.2 | 1.1 | 1.0 | 1.0 | 0.8 |
| EV/EBITDA | 8.4 | 4.2 | 3.7 | 3.3 | 2.7 |
| EV/EBIT | 12.9 | 6.8 | 6.7 | 5.7 | 4.5 |
Embracer reported topline of SEK8,552m and adjusted EBIT of SEK1,207m which was somewhat below our estimates of SEK9,307m and SEK1,278m, respectively. The main deviations were from the PC/Console and Mobile segments, which saw both lower topline and EBIT than expected. Tabletop saw somewhat softer topline, but the profitability was strong and adjusted EBIT was higher than expected. Entertainment & Services had a soft quarter with limited EBIT which was largely as expected. The company continued to decrease capex which came in at SEK995m, slightly lower than our forecast of SEK1,128m. Net debt decreased to SEK13.2bn from SEK14.0bn in Q1 2024/25, driven largely by the payment of the Saber divestment. The table below shows the Q3-results outcome compared to our forecasts.
Disclosures and disclaimers