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Ubisoft - New Issue Comment

TRANSACTION OVERVIEW
Ubisoft, the world’s No. 3 video games publisher, is tapping the bond market with an offering of €300-400m of 5Y unsecured notes. The proceeds will be used mainly for general corporate purposes, and to repay the two Euro PPs including €40m 3.038% bonds due May 2018 and €20m 3.99% bonds due December 2018. The issue, which is in-vestment grade style, has not been rated by S&P and Moody’s

WE INITIATE OUR COVERAGE WITH A POSITIVE VIEW
We initiative our coverage on Ubisoft with a Positive view. The French firm is well positioned as the world’s No. 3 publisher of video games, just behind Activision-Blizzard and Electronic Arts. It enjoys very sound industry trends, including expected steady growth in video games demand over the long run and high barriers to entry, while the oligopolistic situation enables high profitability (LTM EBITDA margin of 45%). Ubisoft is, in our view, the most integrated and creative publisher in the sector, with the many famous franchises under its belt assuring recurrent sales. The company is in the middle of a digitalization strategy to meet new gaming trends and catch additional, more profitable revenues stream. On this front, Ubisoft is still largely lagging behind its two American competitors but the headroom for progress is material. For 2018 management targets sales of €1.6bn (+12% yoy) and EBIT of €270m (16.5% margin), rising to €2.1bn (+28% yoy notably fuelled by 4 AAA releases) and €440m (21% margin) respectively in 2019, which we believe to be achievable. In addition, we think that the conflictual relationships be-tween the founding family and Vivendi, the major shareholder, will come to an end with the exit of the latter.