CD Projekt: What the “beep� (downgraded to HOLD)
We have downgraded CD Projekt to HOLD, from Buy, while increasing our price target (PT) to PLN 118/share (from PLN 102/share). We remain fans of the company, its management, existing products and prospective titles. However, we believe that, in the near term, it may lack catalysts as the Cyberpunk 2077 premiere is still a while away and, at this stage, we see no reason to hike our current assumptions on this front. Ultimately, however, it would be the key trigger for our valuation. We are aware that the market reacts enthusiastically to every “beep†related to Cyberpunk 2077, but we believe that our estimates for the game are ambitious enough (14.5m copies sold in 2019E, Year 1 of the release, vs. 8m copies of The Witcher 3). While our 2019E assumptions for Cyberpunk 2077 are fairly optimistic, we also note that the current price is, at least to some extent, reflective of the successful continuation of The Witcher series and other new titles in the long term, according to our calculations. Thronebreaker sales in 2018E may be the last resort for a positive surprise, but too little to provide meaningful upside, in our view. However, Gwent has a limited impact on our PT, at PLN 8.7/share (7% of our 12M PT) currently.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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