Embracer: Beat & ~15% organic growth in tough quarter - ABG

Q1 adj. EBIT SEK 1,271m, +12% vs. ABG, +5% vs. cons
Prel. consensus 21/22e adj. EBIT estimate up ~10%
Webcast call today at 09:00 CET

Embracer delivered a strong quarter today, which beat Infront consensus expectations, with an adj. EBIT of SEK 1,271m, +12% vs. ABGSCe and +5% vs. consensus. Revenues were SEK 3,427m, 6% vs. ABGSCe and +3% vs. consensus, for a total y-o-y growth of 65.6%. However, when we adjust for M&A and FX we reach an organic growth of ~15% on a group level (ABGSCe was at 19.5% before the report). We consider this a strong performance given the COVID-19 boosted comparables from last year and compared to many gaming peers which have been struggling for organic growth in this quarter. Games represented 86.4% of total revenues as Gearbox, Easybrain and Aspyr are now fully consolidated, which drove a large uptick in the gross margin, which came in at 76.3%, +16.4pp vs. ABGSCe and +10.4pp vs. consensus, up from 59.9% in Q4’20/21. Ultimately adj. EPS was SEK 2.30 per share, growing 53.7% y-o-y. Management reiterates the previously highlighted current FY pipeline of new games with a development cost of SEK 2.9-3.3bn. The releases will scale up over the remaining three quarters, Q2’21/22e will feature new game releases with a development cost of SEK 225-275m, and Q4 will features the strongest lineup.

Embracer’s share is down ~3% YTD, following a change in investor sentiment in regard to gaming companies. As such, Embracer is now trading at a 21/22e EV/adj. EBIT of 13x on our estimates, which is ~30% below the five-year historical average. This is despite Embracer having a new game pipeline with a SEK 2.9-3.3bn development cost (~4x last year) which we think will drive ~30% organic growth in a year where peers are struggling for growth and plenty of M&A headroom (SEK +20bn). There is a webcast at 09:00 CET, link: https://tv.streamfabriken.com/embracer-group-q1-2021

Länk till analysen i sin helhet: https://www.introduce.se/foretag/embracer-group/Equity-research/2021/8/embracer-group---beat--~15-organic-growth-in-tough-quarter/