Embracer Group (Buy, TP: SEK38.00) - Stormy but in a better position

We have lowered our target price to SEK38 (43) after a 9% cut to our 2024/25e group EBIT (weaker than expected PC/Console delivery and near-term outlook), but reiterate our BUY as we expect better FCF and still see a high probability of a potential divestment, which should improve the balance sheet materially. We acknowledge the low investor confidence, but believe the company is in better shape after the restructuring.

Embracer Group (Buy, TP: SEK43.00) - Closing in on FCF delivery

We see a good potential that Embracer will achieve key catalysts: Q3–Q4e adj. EBIT of SEK2.2bn–1.8bn; more FCF improvements; and potential divestments to strengthen the balance sheet. We have reduced our 2023/24e EPS by 3% and cut our target price to SEK43 (45), but reiterate our BUY, expecting Tabletop and Mobile to be healthy in Q3. Also, we believe an improved back catalogue and release schedule bodes well for PC/Console in Q4.

Embracer Group (Buy, TP: SEK45.00) - Cash flow improvement started

We reiterate our BUY and SEK45 target price following a Q2 report with higher cash flow, maintained guidance for 2024/25e net debt, healthy execution of the restructuring so far, and likely further sequential improvements ahead. We have left our underlying EBIT forecasts fairly intact, while we have increased our 2024/25e FCF to better reflect the company’s ambition to lower run-rate capex.

Embracer Group (Buy, TP: SEK45.00) - Time for delivery in H2

We reiterate our BUY and SEK45 target price, having only fine-tuned our estimates ahead of the Q2 results, due at 07:00 CET on 16 November. We expect Q2 adj. EBIT down by 26% YOY due to harsh comparables after the Saints Row release. Embracer clearly needs to improve its near-term FCF; we remain fairly positive on the outlook due to a healthier back catalogue, and PC/Console EBIT and cash flow improvements in H2e.

Northern Lights

Embracer Group (Buy, TP: SEK45.00) - 2023/24 off to a solid start

Q1 sales were 10% higher than forecast, but adj. EBIT was 2–6% below our estimate and consensus, driven by weak back catalogue sales. Embracer reiterated its 2023/24 adj. EBIT guidance of SEK7bn–9bn, with ‘increased confidence’ based on solid YTD progress. With a strong release schedule for the rest of the year and cost and FCF improvements expected near-term, we reiterate our BUY and SEK45 target price.

Northern Lights

Embracer Group (Buy, TP: SEK45.00) - In search of cash-flow execution

We reiterate our BUY, but with a lowered target price of SEK45 (50) ahead of the Q1 report (due on 17 August at 06:00 CET). We expect healthy underlying EBIT, driven by the successful release of ‘Dead Island 2’, but have cut our 2023/24–2024/25e adj. EPS by 8% to reflect the SEK2bn rights issue and financing costs. Focus should continue to be on cash flow and guidance; we believe any further colour on the implicit 2023/24 FCF guidance of SEK~6bn could help improve the low investor confidence.

Embracer Group (Buy, TP: SEK50.00) - Needs to level up

We reiterate our BUY, but with a sharply lowered target price of SEK50 (100) following Embracer missing out on a potential ‘ground-breaking strategic partnership’ and the ensuing >30% cut of its 2023/24 adj. EBIT guidance. We have reduced our earnings forecasts significantly and applied a more cautious target multiple (10% FCF yield). Management is left with a heavy burden of proof, but even with an FCF forecast below its target, we believe minor cash flow improvements should support the stock.

Embracer Group (Buy, TP: SEK100.00) - An eventful year ahead

We reiterate our BUY and SEK100 target price ahead of the Q4 report (due at 06:00 CET on 17 May). We expect a soft quarter, having stripped out a cSEK1.5bn adj. EBIT effect from ‘transformative partnerships’ delayed by one quarter, and have thus raised our 2023/24e by 6%, not fully offsetting a nearly 20% cut to our 2022/23e based on lower partnership deal confidence. That said, we still believe in the case for earnings and cash improvement and expect rebounding PC/Console earnings ahead.

Northern Lights

Embracer Group (Buy, TP: SEK100.00) - Cash flow inflection point

We reiterate our BUY and SEK100 target price despite having cut our 2023/24e adj. EBIT by 7%, towards the low end of Embracer’s maintained guidance. With a credible operating cash flow increase, incoming transformative partnerships, and a sizeable and interesting games pipeline, we believe the risk/reward has improved. We expect FCF, before earnouts, to rise to cSEK5bn in 2023/24, up c150% YOY.

Northern Lights

Embracer Group (Buy, TP: SEK100.00) - Slight cash-flow improvement lik...

We have lowered our target price to SEK100 (105) to reflect a c5% cut to our adj. 2023/24e EBIT but reiterate our BUY ahead of the Q3 results (due at 06:00 CET on 16 February). We still expect H2, and especially Q4, to be an inflection point for cash flow supported by e.g. Tabletop and transformative platform deals. For 2023/24, Embracer expects to release four AAA games, starting with the long-awaited ‘Dead Island 2’ in Q1, likely supporting medium-term organic growth.

Northern Lights

Raiffeisen Research Institutional Equity Daily 17.11.2022

 AT: Flughafen Wien - Q3 22 a notch above market expectations (neutral)  AT: Uniqa - Earnings beat driven by investment income result (positive)  PL: Banks - Local court suspends charging interest payment based on the Wibor in PLN mortgage loan contract (negative)  SE: Embracer - Q2 top line 6.7% ahead of consensus but adjusted EBIT 3.5% below (neutral)

Embracer Group (Buy, TP: SEK125.00) - Positive direction of earnings

We forecast Q2 adj. EBIT of SEK2.2bn, in line with the company’s ambition of clearly stronger than in Q1. However, we have cut our 2023/24e adj. EBIT by 5% to reflect a more cautious market view, while our 2022/23e adj. EBIT is at the low end of the guidance. Nevertheless, reflecting the poor share price lately and our expectation of material improvements in H2e, we reiterate our BUY. That said, we have cut our target price to SEK125 (155).

Northern Lights

Embracer Group (Buy, TP: SEK155.00) - Fending off wind in the sandbox

We reiterate our BUY and SEK155 target price after fine-tuning our 2022/23e adj. EBIT for the rather soft Q1 but high M&A activity. We continue to see a medium-term buying opportunity ahead of expected earnings improvements QOQ. Soft critic reviews of ‘Saints Row’ (AAA, sandbox game) are negative, but in a wider perspective the game could still generate healthy sales and ROI. We believe the market is underestimating the strength of Embracer’s diversified games portfolio.

Northern Ligths