CD Projekt: expensive after the rally (downgraded to SELL)

We have downgraded CD Projekt (CDR) to SELL (from Hold), on valuation grounds. We have revised up our 12M price target (PT) to PLN 157 (from PLN 120), mostly to reflect our increased price point assumption for AAA games in the mid-term, corresponding with rising games’ development budgets. We also implement slightly more optimistic assumptions for the back-catalogue sales and the Cyberpunk sequel (Orion) sales volumes. At the same time, we note that CDR’s share price has rallied by 50% since our November 2023 update, outperforming the WIG20 index by a strong 47ppts, which we do not see as fully justified. We believe that the nearest AAA release from CDR will be Polaris, from The Witcher universe, in 2027E (vs. our assumption of 2026E previously). This implies three “gap” years (2024-26E) in a row. Even if we take into account the extended five-year earnings outlook, to account for the 2027-28E releases, our 2024-28E average EPS forecasts for CDR imply a P/E of 24.5x, still a 38% premium vs. its global peers, which we see as unjustified.