CD Projekt - #switcher is coming
We update our forecast for CD Projekt due to the announcement of the Witcher 3 for Nintendo Switch console. We expect this version to sell 0.5 million copies in 2019 generating additional PLN 25 million for the Company. It should be noted that the debut is nicely aligned with the debut of The Witcher – a new TV series by Netflix, which should be released sometime toward the end of the year. We believe that it may boost the popularity of the Witcher franchise.
Our expectations for the sale of Cyberpunk 2077 stay unaltered at 21 million copies in the quarter of release and 27.5 million in 2020, which would allow the Group to generate total of PLN 3.2 billion/ PLN 1.8 billion revenues/ net profit in FY20. Based on our forecasts the Company currently trades at 2020 P/E of 11.9x and average 2020-2022 P/E of 15x, which implies, respectively 40% and 25% discount vs foreign peers, therefore we maintain our LT fundamental and ST market relative recommendations at Buy and Overweight. We also marginally increase our estimate of the Company’s 12M EFV to PLN 258 per share (from PLN 249 per share) due to (i) marginally higher results forecasts (related to the strong sale of W3 in 1Q19 and accounting for the Nintendo Switch version) as well as (ii) a c. 3% increase in the valuation of peer companies.
As we expected, CD Projekt’s superior appearance during E3 Expo (see our E3 Expo 2019 coverage report from June 20) is followed by the upward revisions of analysts’ forecasts. We expect this trend to prevail toward the end of 2019, which should additionally support the Company’s valuation.
CD Projekt is a holding company of the CD PROJEKT Capital Group which conducts its operations in two activity segments: CD PROJEKT RED and GOG.com. CD PROJEKT RED's activities cover the creation and publication of videogames, licensing the associated distribution rights and manufacturing tie-in products which exploit the commercial appeal of brands owned by Co. The activities of GOG Ltd. involve digital distribution of videogames via Co.'s proprietary GOG.com distribution platform, on the basis of contracts signed by GOG Ltd. with producers, IPR holders and external publishers. The platform enables customers to purchase games, remit payment and download game files to their personal devices.
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