Equity Research - 19 February 2020 22:24 CET

Embracer Group Reason: Post-results comment

Company sponsored research

Solid Q3, but story all about M&A today
Not rated
 Solid Q3’19/20, adj. EBIT +4.1% vs. consensus
Estimate changes (%)
 M&A: Saber Interactive adds 25-27% adj. EBIT 2020-21e 2019e 2020e 2021e
 20/21e EV/adj. EBIT 15.4x , ~30% below peer avg. Sales -0.5% 10.3% 11.3%
EBIT (rep) -29.4% 24.6% 24.6%
Q3’19/20: Net sales of SEK 1,509m, adj. EBIT SEK 302m EPS (rep) -34.2% 25.9% 27.0%
Embracer reported its Q3’19/20 report today, which offered a small beat Source: ABG Sundal Collier

vs. consensus estimates. Reported net sales were SEK 1,509m, -1.7%
Share price (SEK) 19/02/2020 106.0
vs. ABGSCe but +6.8% vs. consensus, corresponding to total y-o-y
Software, Sweden
growth of 9.3%. Revenues were driven by strong backcatalogue sales
from Metro Exodus, Wreckfest and Satisfactory, but also by Darksiders EMBRACB.ST /EMBRACB ST
Genesis release on PC/Google Stadia, which slightly exceeded
management expectations. The Games segment represented 55.4% of MCap (SEKm) 29,754
revenues, 5.5pp below our estimate of 60.9%, as we had expected MCap (EURm) 2,815.2
slightly stronger revenues from Deep Silver. As such, group margins Net debt (EURm) -209
were pressured by the high degree of Partner Publishing revenues –
which have low gross margins – and adj. EBIT was SEK 302m, -16.8% No. of shares (m) 281
vs. ABGSCe but +4.1% vs. consensus. Free float (%) 48.2
Av. daily volume (k) 411.7
We add 25-27% to adj. EBIT 2020-21e due to M&A
However, the story of this report was not the slight beat vs. consensus, Next event Q4 report: 20 May
but rather Embracer’s largest acquisition to date, in the form of the
independent developer and publisher Saber Interactive: more information Performance
on the acquisition can be found on page 7. Saber Interactive is expected
900
by management to generate USD 105m alongside EBIT of USD 62m 800

during the calendar year of 2019. Embracer states that the company’s 700
600
outlook for 2020 indicates a similar financial performance, which would 500
400
suggest adding roughly 40% to our 2020/2021 adj. EBIT estimates.
300
However, we choose to err on the side of caution and add 25-27% to 200
100
Embracer’s adj. EBIT for 20/21e and 21/22e, respectively. The main
0
reasoning is that as of today only one of Saber Interactive’s upcoming
Apr 17

Oct 17

Apr 18

Oct 18

Apr 19

Oct 19
Feb 17

Feb 18

Feb 19
Jun 17

Jun 18

Jun 19
Dec 17

Dec 18

Dec 19
Aug 17

Aug 18

Aug 19

games for Embracer’s next FY has been publicly announced –

Embracer Group OMX STH PI
SnowRunner – and we find it risky to extrapolate further.
1m 3m 12m
Share up ~50% YTD, but trading below peers on next FY Absolute (%) 36.8 55.0 59.8
Based on our updated estimates, which now includes Saber Interactive OMX STH PI (%) 2.7 10.3 23.0
in the next FY, we find that Embracer is trading at an EV/adj. EBIT of Source: FactSet
29x-14x for 19/20e-21/22e, which is ~20% below our mid-sized peer
group average EV/EBIT for that same period, according to FactSet.
Lead analyst: Jesper Birch-Jensen
Stefan Knutsson
2019e 2020e 2021e
SEKm 2017 2018 2019e 2020e 2021e
P/E (x) 131.6 37.5 35.9
Sales 508 5,754 5,130 7,993 8,134
P/E adj (x) 131.6 37.5 35.9
EBITDA 273 1,593 1,813 2,786 3,013
P/BVPS (x) 4.11 2.97 2.74
EBITDA margin (%) 53.7 27.7 35.3 34.8 37.0
EV/EBITDA (x) 15.3 10.6 9.7
EBIT adj 188 575 354 1,092 1,140
EV/EBIT adj (x) 78.3 27.1 25.5
EBIT adj margin (%) 37.1 10.0 6.9 13.7 14.0
EV/sales (x) 5.41 3.70 3.58
Pretax profit 182 545 341 1,072 1,120
EPS rep 1.76 4.22 0.81 2.83 2.95
ROE adj (%) 3.3 9.2 7.9
EPS adj 1.76 4.22 0.81 2.83 2.95 Dividend yield (%) 0 0 0
FCF yield (%) -2.4 -2.5 1.4
Sales growth (%) 68.1 1,033.7 -10.8 55.8 1.8
Lease adj. FCF yld (%) -2.4 -2.5 1.4
EPS growth (%) 75.8 140.4 -80.9 251.1 4.5
Net IB debt/EBITDA -1.2 -0.1 -0.3
Source: ABG Sundal Collier, Company data Lease adj. ND/EBITDA -1.2 -0.1 -0.3

Please refer to important disclosures at the end of this report

This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to
constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II.
Embracer Group

Opportunities
A large part of the IP portfolio is still not generating any
income, but the pipeline of game launches is strong,
including a few AAA titles. Together with a strong
management with a clear M&A agenda, Embracer Group is
well suited for future value-adding acquisitions, which
could mean securing more IPs and portfolio expansion.
The acquisition of Koch Media further adds new
distribution/publishing channels, an opportunity to reach
further and wider with the current portfolio and expected
pipeline, aligning them for additional growth.
Risks
Despite Embracer Group’s broad portfolio, there are risks
associated with larger title releases as they have a
relatively large impact on sales right after launch.
Moreover, disappointing releases or reviews could dent
end-customer enthusiasm and hurt the company's
finances, especially during the launch period. Delays in
planned and ongoing gaming projects could adversely
affect the group’s profitability. Acquiring established but
temporarily underperforming gaming brands and gradually
improving them increases the potential risk of performing
below market expectations.

Geographical breakdown, 2018, SEKm Business area breakdown, 2018, SEKm

2,000 3,500
1,800
3,000
1,600
2,500
1,400
1,200 2,000
1,000
1,500
800
1,000
600
400 500
200
0
0 THQ Nordic Deep Silver Coffee Stain Partner
Owned titles Publishing titles Physical sales Digital sales Publishing/Film

Sales Sales

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

EPS estimate changes, 2019e, SEK EPS estimate changes, 2020e, SEK
2.0 3.0

1.8 2.8

2.6
1.6
2.4
1.4
2.2
1.2
2.0

1.0 1.8

0.8 1.6

ABGSC FactSet Consensus Mean ABGSC FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet Source: ABG Sundal Collier, FactSet

Quarterly sales and adj. EBIT, SEKm Company description

Embracer Group acquires, develops and publishes PC and
1,800 200
console games for the global gaming market. Its core
1,600 180
business model consists of acquiring established gaming
1,400 160
brands and gradually improving them. Much of Embracer
140
1,200 Group’s soul stems from entrepreneur, founder and CEO
120
1,000 Lars Wingefors, who at the age of 16 founded Nordic
100
800 Games, which we today associate with Embracer Group.
80
600 The game changer came in 2013 when most of today’s
60
400 brand portfolio was acquired from THQ Inc’s insolvency. At
40
200 the start of 2018, the company acquired Koch Media,
20
which focuses on game development and gives Embracer
0 0
Group a larger publishing business.
quarterly sales quarterly adj. EBIT

Source: ABG Sundal Collier, Company data

19 February 2020 ABG Sundal Collier 2

Embracer Group

Q3’19/20 Deviations
Q3’19/20 Deviations vs. ABGSCe and vs. FactSet consensus
Deviation to estim ates (SEKm ) Actual Actual ABGSC Deviation Consensus Deviation
Net sales Q4'18 Q3'19/20 Q3'19/20e SEKm % Q3'19/20e SEKm %
Games - THQ Nordic 351.9 333.0 325.0 8.0 2.5%
Games - Deep Silver 186.7 466.6 550.0 -83.4 -15.2%
Games - Coffee Stain 13.9 36.1 60.0 -23.9 -39.8%
Gam es Total 552.5 835.7 935.0 -99.3 -10.6%
Partner Publishing/Film 828.1 672.9 600.0 72.9 12.2%
Group 1380.6 1508.6 1535.0 -26.4 -1.7% 1413.0 95.6 6.8%

COGS -838.3 -746.7 -765.8 19.1 -

Gross profit 542.3 761.8 769.3 -7.5 -1.0% 708.0 53.8 7.6%

Operating costs -411.8 -536.4 -506.6 -29.9 -

EBITDA 326.4 518.3 547.0 -28.7 -5.2% 493.0 25.3 5.1%

Depreciation & amortization -174.3 -427.4 -344.1 -83.3 -

Operational EBIT 194.0 302.0 363.0 -61.0 -16.8% 290.0 12.0 4.1%

EBIT 152.0 90.9 202.9 -112.0 -55.2%

Net financials -3.6 -14.6 -6.0 -8.6 -

Taxes -34.2 -42.7 -51.2 8.5 -
Net profit 114.2 33.6 145.7 -112.1 -76.9% 103.0 -69.4 -67.4%

EPS Basic (SEK) 1.32 0.12 0.52 -0.40 -76.9% 0.30 -0.18 -60.1%
Net sales grow th y-o-y Q4'18 Q3'19/20 Q3'19/20 Percentage point Q3'19/20e Percentage point
Games - THQ Nordic 37.8% -5.4% -7.6% 2.3 pp n.a. n.a.
Games - Deep Silver 31.5% 149.9% 194.6% -44.7 pp n.a. n.a.
Games - Coffee Stain n.a. 159.7% 331.7% n.a.
Games Total 35.5% 51.3% 69.2% -18.0 pp n.a. n.a.
Partner Publishing/Film 13.1% -18.7% -27.5% 8.8 pp n.a. n.a.
Group* 21.0% 9.3% 11.2% -1.9 pp 2.3% 6.9 pp

Margins Q4'18 Q3'19/20 Q3'19/20 Percentage point Q1'19/20e Percentage point

Gross margin 39.3% 50.5% 50.1% 0.4 pp 50.1% 0.4 pp
EBITDA margin 23.6% 34.4% 35.6% -1.3 pp 34.9% -0.5 pp
Operational EBIT margin 14.0% 20.0% 23.6% -3.6 pp 20.5% -0.5 pp
EBIT margin 11.0% 6.0% 13.2% -7.2 pp 0.0% 6.0 pp

Source: ABG Sundal Collier, FactSet, company data

19 February 2020 ABG Sundal Collier 3

Embracer Group

Estimate changes
As we mention on the first page, we elect to err on the side of caution and not
assume that Saber Interactive will generate ~SEK 600m in adj. EBIT in 20/21e,
which would correspond to a ~40% increase to our old estimates, since the
visibility into its new game pipeline is very low. As such, we increase adj. EBIT
for 20/21e & 21/22e by 25.1% and 26.5%, respectively. When we gain further
insight into the pipeline for the next FY, we will revaluate our estimates. Lastly,
the negative estimate revisions to the current financial year are made on the back
of the Q3’19/20 report, which was below our estimates. We also slightly adjust
our D&A assumptions for the Q4’19/20e report.

ABGSC estimate changes, 19/20e-21/22e, (SEKm)

Estim ate changes (SEKm ) Old forecast New forecast Change
Net sales 2019/20e 2020/21e 2021/22e 2019/20e 2020/21e 2021/22e 2019/20e 2020/21e 2021/22e
Games THQ Nordic 1139.6 1650.0 1850.0 1147.6 1650.0 1850.0 0.7% 0.0% 0.0%
Games Deep Silver 1814.7 1950.0 2150.0 1731.3 1950.0 2150.0 -4.6% 0.0% 0.0%
Games Coffee Stain 257.7 300.0 310.0 233.8 300.0 310.0 -9.3% 0.0% 0.0%
Games Saber Interactive n.a. n.a. n.a. 0.0 743.3 824.2 n.a. n.a. n.a.
Gam es Total 3212.0 3900.0 4310.0 3112.7 4643.3 5134.2 -3.1% 19.1% 19.1%
Partner Publishing/Film 1944.6 3350.0 3000.0 2017.5 3350.0 3000.0 3.7% 0.0% 0.0%
Group 5156.6 7250.0 7310.0 5130.2 7993.3 8134.2 -0.5% 10.3% 11.3%

COGS -2459.0 -3612.3 -3418.9 -2435.4 -3801.8 -3641.2 -1.0% 5.2% 6.5%
Gross profit 2697.8 3637.7 3891.2 2694.8 4191.5 4493.0 -0.1% 15.2% 15.5%

Capitalized costs & other income 984.4 1174.5 1293.9 993.0 1311.9 1448.7 0.9% 11.7% 12.0%
Operating costs -1845.2 -2407.0 -2595.1 -1875.0 -2717.7 -2928.3 1.6% 12.9% 12.8%

EBITDA 1837.0 2405.2 2590.0 1812.8 2785.6 3013.4 -1.3% 15.8% 16.3%

Depreciation & amortization -1335.5 -1528.6 -1675.0 -1458.8 -1693.6 -1873.1 9.2% 10.8% 11.8%

Operational EBIT 1108.6 1516.2 1605.0 1027.1 1896.7 2030.7 -7.4% 25.1% 26.5%
EBIT 501.5 876.6 915.0 354.0 1092.0 1140.3 -29.4% 24.6% 24.6%

Net financials -26.3 -24.6 -33.1 -13.3 -19.6 -20.0 -49.5% -20.3% -39.5%
Taxes -131.5 -221.5 -229.3 -114.7 -278.8 -291.3 -12.8% 25.9% 27.0%
Net profit 343.7 630.5 652.6 226.0 793.6 829.0 -34.2% 25.9% 27.0%

EPS Basic (SEK) 1.22 2.25 2.32 0.81 2.83 2.95 -34.2% 25.9% 27.0%
Net sales grow th y-o-y 2019/20e 2020/21e 2021/22e 2019/20e 2020/21e 2021/22e 2019/20e 2020/21e 2021/22e
Games THQ Nordic 18.2% 44.8% 12.1% 19.0% 43.8% 12.1% 0.8 pp -1.0 pp 0.0 pp
Games Deep Silver 15.5% 7.5% 10.3% 10.2% 12.6% 10.3% -5.3 pp 5.2 pp 0.0 pp
Games Coffee Stain n.a. 16.4% 3.3% n.a. 28.3% 3.3% n.a. 11.9 pp 0.0 pp
Games Saber Interactive n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Games Total 31.3% 21.4% 10.5% 27.2% 49.2% 10.6% -4.1 pp 27.8 pp 0.1 pp
Partner Publishing/Film -27.3% 72.3% -10.4% -24.6% 66.0% -10.4% 2.7 pp -6.2 pp 0.0 pp
Group 0.7% 40.6% 0.8% 0.2% 55.8% 1.8% -0.5 pp 15.2 pp 0.9 pp

Margins 2019/20e 2020/21e 2021/22e 2019/20e 2020/21e 2021/22e 2019/20e 2020/21e 2021/22e
Gross margin 52.3% 50.2% 53.2% 52.5% 52.4% 55.2% 0.2 pp 2.3 pp 2.0 pp
EBITDA margin 35.6% 33.2% 35.4% 35.3% 34.8% 37.0% -0.3 pp 1.7 pp 1.6 pp
Operational EBIT margin 21.5% 20.9% 22.0% 20.0% 23.7% 25.0% -1.5 pp 2.8 pp 3.0 pp
EBIT margin 9.7% 12.1% 12.5% 6.9% 13.7% 14.0% -2.8 pp 1.6 pp 1.5 pp
Source: ABG Sundal Collier, company data

19 February 2020 ABG Sundal Collier 4

Embracer Group

Q3’19/20 Highlights
Q3’19/20 turned out to offer a lot more news than just the financials, which were
solid in our mind, with a slight beat vs. consensus estimates. Below we highlight
a few additional events which we think warrant attention.

Amplifier Game Invest

In conjunction with the Q3’19/20 report, Embracer announced that Goodbye Kansas
Game Invest, which was acquired in August 2019, will be rebranded Amplifier Game
Invest. The new entity will serve as a vehicle for Embracer’s investments into new
IP-development, and will (as of the report) serve as Embracer’s fourth operative
group.

During and after the quarter, Amplifier Game Invest founded two new studios based
around senior developers, through which Embracer will seek to attract talented
developers, with Embracer providing incentives and commercial support in order to
fuel creativity.

As such, Amplifier Game Invest will now feature four distinct studios: River End
Games in Sweden, C77 Entertainment in the U.S., Nine Rocks Games in Slovakia
and Misc Games in Norway. In addition, another two studios have been established
since 1 January 2020, which are to be publicly announced in the near future.

Management additions
The Q3’19/20 report not only offered Embracer’s largest acquisition to date, but it
also proclaimed several new management team members who bring experience
through long and successful careers within the gaming industry. Furthermore, in our
view, the recruitment brings some needed experience in the gaming industry to
Embracer Group’s board of directors.

Matthew Karch who cofounded Saber Interactive with Andrey Iones will come to
serve as the Operational CEO of Saber Interactive. He brings +20 years of industry
experience to the table, having managed Saber Interactive from a 3-person start-up
to an international developer and publisher with 600 in-house developers. He will
also serve on Embracer Group’s board of directors.

David Gartner will join Embracer Group as a new board member as of 1 April 2020.
He brings over 30 years of experience to the board of directors, having been a part
of the founding team behind Electronic Arts, going on to establish EA’s European
Business Unit in 1986, and leading it to reach USD 1bn in gross revenues in 1986.

Andrey Iones, cofounder of Saber Interactive, will serve as COO of Saber

Interactive, bringing +23 years of experience from within the gaming industry as the
operations leader for Saber Interactive.

Tim Willits will join Saber Interactive as its Chief Creative Officer. Having
established +24 years of experience from the industry, being the creative mind
behind well-known games like Quake and Doom, he is considered likely to prove to
be a valuable asset for Saber Interactive in the years to come.

19 February 2020 ABG Sundal Collier 5

Embracer Group

Pipeline estimates
The key to understanding financial estimates for Embracer lies in evaluating the
company’s video game pipeline. This is true for its video game development and
publishing segments, Deep Silver, THQ Nordic, Coffee Stain, Saber Interactive
and for its Partner Publishing division, which in turn is based on its partners’ –
Square Enix and Capcom to name two – video game pipelines.

Since our latest update we have expanded our estimates to include quarterly
pipeline estimates for Embracer’s upcoming financial year, 20/21e. As is evident
from the table below, many of the notable releases for the upcoming FY still lack a
firm release date; however, the upcoming titles for the Partner Publishing segment
show more firm dates.

Following the acquisition of Sabre Interactive, we also include the one upcoming
announced title for Embracer’s next FY, SnowRunner.

Estimated release dates for select titles

Pipeline estimates - ABGSC
Jan-Mar '20 Apr-Jun '20 Jul-Sep '20 Oct-Dec '20 Jan-Mar '21
Gam es Segm ent Q4'19/20e Q1'20/21e Q2'20/21e Q3'20/21e Q4'20/21e
Dead Island 2 Deep Silver X X X
Saints Row V Deep Silver X X X
Iron Harvest Deep Silver X
Metro Exodus (Steam release) Deep Silver X
Metro Exodus - Sam's Story (DLC) Deep Silver X
Spongebob SquarePants: Battle for Bikini Bottom THQ Nordic X X X X
Biomutant THQ Nordic X X X X
Desperados 3 THQ Nordic X X X X
Darksider Genesis (Consoles) THQ Nordic X
Destroy All Humans THQ Nordic X X X X
Satisfactory (Steam release) Coffee Stain X
Snow Runner Sabre Interactive X

Partner Publishing Q4'19/20e Q1'20/21e Q2'20/21e Q3'20/21e Q4'20/21e

Final Fantasy VII Remake Partner Publishing X
Marvel's Avengers Partner Publishing X
Dying Light 2 Partner Publishing X X
Resident Evil 3 Remake Partner Publishing X
Persona 5 Royal Partner Publishing X
Doom Eternal Partner Publishing X

Source: ABG Sundal Collier, company data

Game investment, (SEKm) Games in development

400 373 120
356
343
350 96
305 100
86
300 273 81
80
77
80
250 234
208
200 60 54 55
173 51

150 36
40 32
29 30 29
87 27
100 78
67
59
47 20
30 35
50 22

0 0

Externally developed Internally developed Announced Unannounced

Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

19 February 2020 ABG Sundal Collier 6

Embracer Group

Saber Interactive acquisition

Following the Q3’19/20 report, Embracer announced its largest acquisition to
date, in the form of the independent developer and publisher Saber Interactive.
Founded in 2001 with an initial team of 3 employees, Saber Interactive has grown
to become a leading independent developer of PC and console games, with a
workforce now featuring approximately 600 in-house developers, 5 internal
development studios, 3 external development studios, and a total of 12 projects
in development, 4 of which have been announced so far.

The upfront payment for Saber Interactive amounts to USD 150m, divided between
USD 100m in cash, and 6,209,353 B shares of Embracer group, equivalent of USD
50m, of which USD 30m is subject to a one-year lockup. In addition, the deal
features a possible earn-out totalling USD 375 over six years, of which USD 100m
is in cash and USD 275m is in equity. Through the transaction, Sabre Interactive’s
two founders, Matthew Karch and Andrey Iones, become two of the largest
shareholders in Embracer Group, with a combined 11% and 15% of the capital and
votes, respectively.

We do not have access to a comprehensive overview of Sabre Interactive’s

historical financials; however, management expects the company to grow its
revenues from USD 38m in 2018 to USD 105 in 2019, and EBIT from USD 14m to
USD 62m during that same period. As such, the total consideration, assuming full
earn-out, of USD 525m corresponds to approximately 8.4x Saber Interactive’s 2019
EBIT.

Through the acquisition of Saber Interactive, Embracer gains a large team of

experienced developers, whose work ranges from development of games licensed
from the original IP owner, like World War Z – which has sold in excess of 3m
copies since release – and NBA 2k Playgrounds 2, to in-house development of
original IPs like MudRunner, and the upcoming SnowRunner. However, equally
important in our view is that Embracer gains three new management members with
a long and successful background within the gaming business: Matthew Karch,
Andrey Iones and Tim Willits.

Saber Interactive, notable releases, Metacritic score

Saber Interactive Platform Year Metacritic score
The Witcher 3: Wild Hunt - Complete edition Sw itch 2019 85
Ghostbusters: The Video Game Remastered PS4 2019 66
Ghostbusters: The Video Game Remastered XONE 2019 68
Ghostbusters: The Video Game Remastered PC 2019 67
Ghostbusters: The Video Game Remastered SWITCH 2019 72
World War Z PC 2019 70
World War Z PS4 2019 67
World War Z XONE 2019 73
Road Redemption Sw itch 2018 73
NBA 2K Playgrounds 2 PS4 2018 73
NBA 2K Playgrounds 2 XONE 2018 62
NBA 2K Playgrounds 2 Sw itch 2018 69
Shaq Fu: A Legend Reborn PC 2018 30
Shaq Fu: A Legend Reborn Sw itch 2018 49
Shaq Fu: A Legend Reborn PS4 2018 36
Shaq Fu: A Legend Reborn XONE 2018 54
Spintires: MudRunner PC 2017 77
NBA Playgrounds PS4 2017 68
NBA Playgrounds XONE 2017 66
NBA Playgrounds Sw itch 2017 63
NBA Playgrounds PC 2017 67

Average 65
Source: ABG Sundal Collier, Metacritic, company data

19 February 2020 ABG Sundal Collier 7

Embracer Group

Quarterly overview
Quarterly overview, Q1’16-Q4’19/20e, (SEKm)
Quarterly overview (SEKm ) Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q5'18 Q1'19/20 Q2'19/20 Q3'19/20e Q4'19/20e
Games - THQ Nordic 43.1 52.7 77.9 128.2 81.9 85.6 84.7 255.4 134.5 145.5 124.2 351.9 142.8 185.0 329.6 333.0 300.0
Games - Deep Silver 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 256.5 338.2 251.8 186.7 794.4 373.0 441.7 466.6 450.0
Games - Coffee Stain 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.9 97.7 83.0 44.7 36.1 70.0
Partner Publishing/Film 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 241.9 353.8 896.6 828.1 595.6 501.0 443.6 672.9 400.0
Net Sales 43.1 52.7 77.9 128.2 81.9 85.6 84.7 255.4 632.9 837.4 1272.7 1380.6 1630.5 1142.0 1259.7 1508.5 1220.0

Capitalized w ork 5.7 7.9 10.2 12.4 13.0 14.3 19.3 32.9 57.6 93.5 102.0 105.9 116.1 131.1 176.6 220.9 183.0
Other operating income 0.7 2.7 2.7 2.7 0.8 2.1 -2.8 2.7 34.0 29.2 64.3 90.0 115.8 44.9 66.9 72.0 97.6
Total operating incom e 49.5 63.3 90.7 143.3 95.7 102.0 101.1 291.0 724.5 960.1 1439.0 1576.4 1862.4 1318.0 1503.2 1801.4 1500.6

COGS -13.3 -18.1 -36.7 -50.7 -24.5 -24.3 -29.7 -69.2 -319.9 -465.9 -895.2 -838.3 -741.3 -528.0 -635.1 746.7 -525.6
Gross profit 29.8 34.7 41.1 77.5 57.4 61.3 54.9 186.2 313.0 371.5 377.4 542.3 889.2 614.0 624.6 761.8 694.4

Opex -13.2 -22.0 -28.7 -31.8 -29.3 -38.0 -36.8 -65.4 -178.8 -287.2 -329.0 -411.8 -502.5 -400.6 -450.0 -536.4 -488.0
Of w hich
Other external expenses -3.9 -10.0 -13.5 -15.3 -10.7 -15.5 -15.9 -33.1 -74.5 -120.1 -158.2 -223.8 -291.4 -177.5 -191.8 -231.4 -183.0
Personnel expenses -8.6 -11.6 -14.9 -17.2 -18.0 -20.8 -21.8 -33.5 -104.3 -167.1 -170.8 -188.0 -211.1 -223.1 -258.2 -305.0 -305.0
Other operating expenses -0.6 -0.3 -0.3 0.7 -0.5 -1.7 1.0 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EBITDA 23.1 23.2 25.4 60.8 41.9 39.7 34.6 156.4 225.8 206.9 214.8 326.4 618.6 389.4 418.1 518.3 487.0

D&A -8.8 -9.0 -9.4 -10.2 -10.1 -9.4 -10.6 -54.4 -118.7 -154.4 -124.0 -174.3 -446.6 -308.3 -341.7 -427.4 -381.4

Operational EBIT 17.6 17.6 19.4 53.7 35.6 34.1 28.1 113.0 125.0 66.9 98.6 194.0 396.1 203.8 240.5 302.0 280.8

EBIT 14.2 14.2 16.0 50.6 31.9 30.3 24.0 102.0 107.1 52.5 90.8 152.0 172.0 81.1 76.4 90.9 105.6

Non-recurring items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net financials -0.2 -0.4 -0.4 -1.1 -0.4 -0.4 -0.6 -4.9 -9.2 -3.9 -3.2 -3.6 -9.3 2.0 3.3 -14.6 -4.0

PTP 14.0 13.8 15.5 49.6 31.5 30.0 23.4 97.1 97.9 48.6 87.5 148.4 162.7 83.1 79.7 76.3 101.6

Taxes -3.3 -3.2 -2.9 -11.6 -8.0 -6.8 -4.4 -23.7 -16.9 -15.2 -22.5 -34.2 -59.7 -30.5 -15.1 -42.7 -26.4
Tax rate 23.5% 23.3% 18.4% 23.3% 25.3% 22.6% 18.8% 24.4% 17.3% 31.2% 25.7% 23.1% 36.7% 36.7% 18.9% 56.0% 26.0%

Net profit 10.7 10.6 12.7 38.0 23.5 23.2 19.0 73.4 81.0 33.4 65.0 114.2 103.0 52.6 64.6 33.6 75.2

EPS basic (SEK) 0.18 0.18 0.21 0.59 0.33 0.32 0.26 0.93 1.03 0.42 0.74 1.32 1.10 0.51 0.23 0.12 0.27
Grow th Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q5'18 Q1'19/20 Q2'19/20 Q3'19/20e Q4'19/20e
Sales y-o-y 14.7% 42.9% 94.6% 30.3% 89.9% 62.2% 8.8% 99.3% 672.7% 878.8% 1403.1% 440.6% 157.6% 36.4% -1.0% 9.3% -25.2%
EBITDA y-o-y 32.5% 20.8% 57.2% 16.3% 81.8% 71.2% 36.4% 157.4% 438.7% 421.1% 521.3% 108.6% 174.0% 88.2% 94.7% 58.8% -21.3%
Operational EBIT y-o-y 43.9% 14.2% 50.9% 39.9% 102.8% 93.9% 45.0% 110.6% 251.0% 96.2% 251.2% 71.6% 216.9% 204.5% 143.9% 55.7% -29.1%
EBIT y-o-y 52.8% 13.8% 66.9% 43.8% 124.2% 113.3% 50.3% 101.5% 236.2% 73.0% 278.1% 49.1% 60.6% 54.4% -15.8% -40.2% -38.6%
Net profit y-o-y 53.1% 11.3% 76.9% 35.2% 119.7% 119.5% 50.1% 93.2% 244.1% 44.1% 241.9% 55.6% 27.2% 57.3% -0.6% -70.6% -27.0%
EPS y-o-y 53.1% 11.3% 76.9% 25.8% 83.0% 82.9% 24.5% 57.2% 213.8% 29.2% 180.6% 43.0% 6.9% 22.6% -68.8% -91.0% -75.5%
Margins Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q5'18 Q1'19/20 Q2'19/20 Q3'19/20e Q4'19/20e
Gross margin 69.1% 65.7% 52.8% 60.4% 70.1% 71.6% 64.9% 72.9% 49.5% 44.4% 29.7% 39.3% 54.5% 53.8% 49.6% 50.5% 56.9%
EBITDA margin 53.5% 44.0% 32.6% 47.4% 51.2% 46.4% 40.8% 61.2% 35.7% 24.7% 16.9% 23.6% 37.9% 34.1% 33.2% 34.4% 39.9%
Operational EBIT margin 40.7% 33.4% 24.9% 41.9% 43.5% 39.9% 33.2% 44.3% 19.8% 8.0% 7.7% 14.0% 24.3% 17.8% 19.1% 20.0% 23.0%
EBIT margin 32.9% 27.0% 20.5% 39.5% 38.9% 35.5% 28.4% 39.9% 16.9% 6.3% 7.1% 11.0% 10.5% 7.1% 6.1% 6.0% 8.7%
Net margin 24.8% 20.1% 16.3% 29.6% 28.7% 27.1% 22.5% 28.7% 12.8% 4.0% 5.1% 8.3% 6.3% 4.6% 5.1% 2.2% 6.2%

Source: ABG Sundal Collier, company data

19 February 2020 ABG Sundal Collier 8

Embracer Group

Annual overview
Annual overview, 2013-2021/2022e, (SEKm)
Annual overview (SEKm ) 2013 2014 2015 2016 2017 2018 2019/2020e 2020/2021e 2021/2022e
Games - THQ Nordic 102.3 178.0 212.9 301.9 507.6 898.9 1147.6 1650.0 1850.0
Games - Deep Silver 0.0 0.0 0.0 0.0 0.0 1827.6 1731.3 1950.0 2150.0
Games - Coffee Stain 0.0 0.0 0.0 0.0 0.0 111.6 233.8 300.0 310.0
Games - Saber Interactive 0.0 0.0 0.0 0.0 0.0 0.0 0.0 743.3 824.2
Partner Publishing/Film 0.0 0.0 0.0 0.0 0.0 2916.0 2017.5 3350.0 3000.0
Net Sales 102.3 178.0 212.9 301.9 507.5 5754.1 5130.2 7993.3 8134.2

Capitalized w ork 0.0 0.0 8.4 36.2 79.6 475.1 711.6 896.2 1042.0
Other operating income 1.8 4.1 5.0 8.7 2.7 333.3 281.4 415.7 406.7
Total operating incom e 104.1 182.1 226.3 346.8 589.8 6562.4 6123.2 9305.2 9582.9

COGS -31.7 -57.5 -70.1 -118.8 -147.7 -3260.7 -2435.4 -3801.8 -3641.2
Gross profit 70.6 120.5 142.8 183.1 359.8 2493.4 2694.8 4191.5 4493.0

Opex -23.6 -29.4 -51.1 -95.6 -169.5 -1709.3 -1875.0 -2717.7 -2928.3
Of w hich
Other external expenses -13.0 -15.2 -28.9 -42.8 -75.2 -868.0 -783.7 -1159.0 -1220.1
Personnel expenses -10.0 -14.2 -22.2 -52.3 -94.1 -841.3 -1091.3 -1558.7 -1708.2
Other operating expenses -0.7 0.0 0.0 -0.5 -0.2 0.0 0.0 0.0 0.0

EBITDA 48.8 95.2 105.1 132.4 272.6 1592.5 1812.8 2785.6 3013.4

D&A -17.1 -27.1 -38.5 -37.4 -84.4 -1018.1 -1458.8 -1693.6 -1873.1

Operational EBIT 48.8 95.2 78.9 108.2 210.8 880.6 1027.1 1896.7 2030.7

EBIT 31.7 68.1 66.6 95.0 188.2 574.4 354.0 1092.0 1140.3

Non-recurring items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net financials -1.6 -1.0 -0.6 -2.1 -6.2 -29.2 -13.3 -19.6 -20.0

PTP 30.1 67.1 66.0 92.9 182.0 545.2 340.7 1072.4 1120.3

Taxes -0.1 -15.0 -14.2 -20.9 -42.8 -148.5 -114.7 -278.8 -291.3
Tax rate 0.4% 22.3% 21.6% 22.6% 23.5% 27.2% 33.7% 26.0% 26.0%

Net profit 30.0 52.2 51.7 71.9 139.2 396.7 226.0 793.6 829.0

EPS basic (SEK) 0.50 0.87 0.86 1.18 1.88 4.22 0.81 2.83 2.95
Grow th 2013 2014 2015 2016 2017 2018 2019/2020e 2020/2021e 2021/2022e
Sales y-o-y 74.0% 19.6% 41.8% 68.1% 1033.7% -10.8% 55.8% 1.8%
EBITDA y-o-y 95.3% 10.4% 26.0% 106.0% 484.1% 13.8% 53.7% 8.2%
Operational EBIT y-o-y 95.3% -17.2% 37.2% 94.9% 317.7% 16.6% 84.7% 7.1%
EBIT y-o-y 115.0% -2.3% 42.7% 98.1% 205.2% -38.4% 208.4% 4.4%
Net profit y-o-y 74.0% -0.8% 39.1% 93.4% 185.0% -43.0% 251.1% 4.5%
EPS y-o-y 74.0% -0.8% 36.5% 59.9% 124.2% -80.9% 251.1% 4.5%
Margins 2013 2014 2015 2016 2017 2018 2019/2020e 2020/2021e 2021/2022e
Gross margin 69.0% 67.7% 67.1% 60.6% 70.9% 43.3% 52.5% 52.4% 55.2%
EBITDA margin 47.7% 53.5% 49.4% 43.8% 53.7% 27.7% 35.3% 34.8% 37.0%
Operational EBIT margin 47.7% 53.5% 37.0% 35.8% 41.5% 15.3% 20.0% 23.7% 25.0%
EBIT margin 31.0% 38.3% 31.3% 31.5% 37.1% 10.0% 6.9% 13.7% 14.0%
Net margin 29.3% 29.3% 24.3% 23.8% 27.4% 6.9% 4.4% 9.9% 10.2%
Other m etrics 2013 2014 2015 2016 2017 2018 2019/2020e 2020/2021e 2021/2022e
EV/Sales 5.7x 3.7x 3.5x
EV/EBITDA 16.2x 10.5x 9.5x
EV/Operational EBIT 28.6x 15.4x 14.2x
EV/EBIT 83.0x 26.7x 25.2x
P/E 131.6x 37.5x 35.9x
ND/EBITDA -0.2x -0.2x -1.0x -1.9x -1.4x -0.2x -0.2x -0.3x
NWC/Sales -9.2% -17.2% -9.1% 0.1% 2.8% 6.8% 5.2% 5.5%
ROE 165.2% 66.2% 32.1% 18.9% 10.6% 3.5% 11.3% 10.6%
ROIC 248.7% 96.0% 51.9% 35.4% 17.5% 4.5% 12.4% 12.0%
ROCE 216.7% 86.0% 39.8% 23.4% 13.6% 5.1% 13.9% 13.1%
FCF yield -12.5% -14.6% -34.1% -5.6% 0.7% 1.4%
FCF/IC 179.2% 40.7% -34.9% -34.9% -51.3% -26.8% 2.8% 5.8%

Source: ABG Sundal Collier, company data

19 February 2020 ABG Sundal Collier 9

Embracer Group

Relative valuation
In order to obtain a comprehensive overview of the valuation and operational
performance of corporations in the video games industry, we compare Embracer
across three peer groups of video game developers and publishers: large, mid-sized
and mobile. The mobile peer group is included to highlight the valuation and
operative performance differences between video game segments.

Operative performance and valuation across peer groups

Large developers & publishers Mcap Share price P/E (x) EV/EBIT (x) EV/EBITDA (x) EBIT-m argin (%) EBITDA-m argin (%) EV/Sales (x) ROIC (%) CAGR '18-'21e
Com pany (SEKm ) Ccy SP 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e Sales EBIT

Activision Blizzard 478,198 SEK 622.4 26.8 26.0 22.6 20.4 18.7 15.5 19.0 17.5 14.6 32.7 34.7 22.6 35.1 37.2 39.0 6.7 6.5 5.7 11.1 11.1 11.8 8.7 15.8
Electronic Arts 309,637 SEK 1,068.9 22.9 22.3 19.7 17.1 15.8 13.7 15.7 14.5 12.7 31.0 31.7 19.7 33.8 34.6 35.5 5.3 5.0 4.5 18.3 17.6 18.7 5.8 9.2
Take-Tw o 125,638 SEK 1,107.7 24.1 25.3 21.1 17.2 17.1 13.9 16.3 15.7 12.3 21.9 21.9 21.1 23.1 23.8 23.9 3.8 3.8 2.9 22.0 17.6 17.7 5.8 2.9
Ubisoft 92,989 SEK 777.5 194.5 28.0 21.1 65.6 20.1 14.8 13.4 8.0 6.3 8.9 19.9 21.1 43.8 49.9 54.5 5.8 4.0 3.5 0.5 7.9 10.2 8.9 11.2
Bandai Namco 114,303 SEK 520.3 20.7 19.1 17.7 12.7 11.2 10.0 10.2 9.1 8.1 11.8 12.4 17.7 14.8 15.4 16.1 1.5 1.4 1.3 13.8 13.7 13.4 3.2 7.8
Nintendo 421,520 SEK 3,538.5 21.8 18.1 17.2 14.2 11.4 10.5 13.7 10.9 10.2 23.9 27.0 17.2 24.8 28.2 29.4 3.4 3.1 3.0 14.7 16.2 15.7 3.5 15.2
NCsoft 110,822 SEK 5,377.8 26.5 18.4 11.5 20.8 13.1 6.8 19.2 12.6 6.3 30.8 39.2 12.1 33.4 40.9 12.8 6.4 5.1 1.0 15.6 23.2 23.2 19.9 36.2
NEXON 139,290 SEK 157.8 11.8 17.0 15.7 8.8 10.0 8.3 8.5 9.5 7.8 39.2 40.4 15.7 40.7 42.8 44.0 3.5 4.0 3.4 16.6 12.4 11.6 5.2 10.2
Peer average 224,050 43.7 21.8 18.3 22.1 14.7 11.7 14.5 12.2 9.8 25.0 28.4 18.4 31.2 34.1 31.9 4.5 4.1 3.2 14.1 15.0 15.3 7.6 13.6
Peer m edian 132,464 23.5 20.7 18.7 17.2 14.5 12.1 14.7 11.8 9.1 27.4 29.4 18.7 33.6 35.9 32.4 4.5 4.0 3.2 15.2 14.9 14.5 5.8 10.7
Em bracer Group (ABGSCe) 29,754 SEK 90 111.2 31.7 30.3 28.6 15.4 14.2 13.8 8.9 8.1 20.0 23.7 25.0 35.3 34.8 37.0 4.9 3.1 3.0 4.5 12.4 12.0 12.2 25.7
vs peer average 155% 45% 65% 29% 5% 21% -5% -27% -17% -20% -16% 36% 13% 2% 16% 7% -25% -5% -68% -17% -21% 61% 89%
vs peer median 373% 53% 62% 67% 6% 17% -7% -24% -11% -27% -19% 33% 5% -3% 14% 7% -23% -7% -70% -17% -17% 112% 140%
Mid-sized developers & publishers Mcap Share price P/E (x) EV/EBIT (x) EV/EBITDA (x) EBIT-m argin (%) EBITDA-m argin (%) EV/Sales (x) ROIC (%) CAGR '18-'21e
Com pany (SEKm ) Ccy SP 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e Sales EBIT

Konami 51,592 SEK 381.5 20.4 16.9 15.4 11.2 8.9 7.6 8.3 6.8 5.8 16.2 18.8 15.4 22.0 24.8 26.6 1.8 1.7 1.5 9.3 10.4 10.7 2.2 4.0
CD Projekt 78,214 SEK 813.7 225.6 17.7 23.6 226.8 12.9 17.3 187.3 11.9 16.4 27.7 70.2 23.6 33.5 76.5 74.8 62.7 9.1 12.3 87.6 147.0
Paradox Interactive 15,924 SEK 150.8 42.3 34.7 29.3 31.1 26.6 22.1 20.9 17.4 14.4 37.2 37.2 29.3 55.4 56.6 59.1 11.6 9.9 8.5 19.9 22.4
Frontier Developments 6,328 SEK 164.7 40.8 38.9 23.9 32.8 30.7 18.2 19.2 17.1 11.6 19.2 19.8 23.9 32.8 35.6 36.1 6.3 6.1 4.2 16.2 14.7 19.4 13.3 17.1
Focus Home Interactive 1,212 SEK 228.8 9.5 10.0 6.9 5.7 6.5 4.2 5.6 6.7 4.5 12.5 12.3 6.9 12.8 11.8 13.4 0.7 0.8 0.6 10.2 22.5
11 Bit Studios 2,738 SEK 1,197.1 42.4 58.2 15.1 31.7 57.0 11.9 26.4 40.4 10.6 36.8 25.8 15.1 44.1 36.3 61.6 11.7 14.7 6.5 21.2 15.6
Code Masters 5,943 SEK 39.3 25.8 20.4 17.2 31.4 18.7 15.4 19.0 14.2 14.9 17.7 23.5 17.2 29.3 31.0 26.0 5.6 4.4 3.9 16.1 42.0
Digital Bros 1,929 SEK 135.3 31.3 17.8 11.8 27.6 13.7 11.1 8.3 3.6 10.0 11.8 11.8 1.0 1.4 1.2 30.7 n.a.
Sumo Group 3,124 SEK 23.9 27.4 26.6 23.7 22.2 20.5 16.8 18.8 16.8 14.2 23.0 21.9 23.7 27.2 26.7 26.5 5.1 4.5 3.8 14.1 14.6 15.7 21.3 31.8
Koei Tecmo 34,925 SEK 275.2 29.0 24.0 20.6 21.8 20.4 14.8 29.8 20.9 16.2 30.3 35.6 20.6 32.4 37.7 42.4 7.1 5.9 5.2 11.0 12.1 12.9 13.3 24.5
Square Enix 52,087 SEK 436.6 26.4 18.9 16.8 15.0 10.2 8.7 12.3 8.9 7.9 11.6 14.1 16.8 14.2 16.0 16.5 1.7 1.4 1.3 10.0 12.4 12.6 7.8 28.1
Capcom 31,613 SEK 296.1 24.2 21.1 19.2 18.8 15.9 13.9 16.2 13.5 11.8 24.7 26.0 19.2 28.8 30.7 31.1 4.6 4.1 3.7 14.0 14.3 14.3 1.0 14.8
Peer average 23,802 45.4 25.4 18.6 39.7 20.2 13.5 31.0 15.9 11.7 21.7 26.3 18.6 28.7 34.9 37.6 10.0 5.3 4.4 12.4 13.1 14.3 20.4 33.6
Peer m edian 11,126 28.2 20.8 18.2 24.9 17.3 14.4 18.9 14.2 11.8 21.1 22.7 18.2 29.0 31.0 31.1 5.3 4.4 3.8 12.5 13.4 13.6 14.7 22.5
Em bracer Group (ABGSCe) 29,754 SEK 106 111.2 31.7 30.3 28.6 15.4 14.2 13.8 8.9 8.1 20.0 23.7 25.0 35.3 34.8 37.0 4.9 3.1 3.0 4.5 12.4 12.0 12.2 25.7
vs peer average 145% 24% 63% -28% -24% 5% -56% -44% -31% -8% -10% 34% 23% 0% -2% -51% -42% -32% -64% -5% -16% -40% -24%
vs peer median 295% 52% 67% 15% -11.0% -1% -27% -37% -32% -5% 4% 37% 22% 13% 19% -9% -30% -22% -64% -7% -12% -17% 14%
Mobile developers & publishers Mcap Share price P/E (x) EV/EBIT (x) EV/EBITDA (x) EBIT-m argin (%) EBITDA-m argin (%) EV/Sales (x) ROIC (%) CAGR '18-'21e
Com pany (SEKm ) Ccy SP 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e Sales EBIT

Com2us 10,242 SEK 841.6 10.7 10.0 8.6 5.4 3.5 2.4 5.2 3.4 2.3 26.8 27.6 8.6 27.6 28.6 30.3 1.4 1.0 0.7 13.5 12.6 12.9 7.5 6.2
Stillfront 13,617 SEK 470.0 22.3 21.6 17.3 17.2 14.2 11.1 13.3 13.1 10.3 30.2 36.4 17.3 39.1 39.5 41.3 5.2 5.2 4.2 35.3 52.8
Zynga 65,492 SEK 69.2 25.1 27.1 22.1 19.4 18.5 14.7 16.7 16.3 12.9 17.2 18.1 22.1 20.0 20.5 22.0 3.3 3.3 2.8 11.1 9.1 10.6 10.3 14.3
G5 Entertainment 868 SEK 96.6 16.1 11.3 8.1 12.4 8.6 5.7 4.6 3.6 2.6 5.2 6.0 8.1 14.1 14.4 17.1 0.6 0.5 0.4 10.7 44.4
Rovio Entertainment 3,394 SEK 42.6 22.5 13.8 12.7 10.9 6.5 5.3 6.1 4.7 4.0 6.9 10.5 12.7 12.3 14.4 14.5 0.7 0.7 0.6 2.1 32.4
Glu Mobile 10,528 SEK 72.2 23.1 29.2 18.0 24.2 14.3 22.3 12.7 8.9 8.4 18.0 9.5 9.1 13.3 2.0 1.7 16.5 19.5 12.4 34.7
Peer average 17,357 20.0 18.8 14.5 13.1 12.6 8.9 9.2 10.6 7.5 15.8 17.8 14.5 20.4 21.1 23.1 2.3 2.1 1.7 12.3 12.7 14.3 13.1 30.8
Peer m edian 10,385 22.4 17.7 15.0 12.4 11.4 8.4 6.1 8.9 7.2 13.0 14.3 15.0 17.0 17.5 19.5 1.4 1.5 1.2 12.3 12.6 12.9 10.5 33.5
Em bracer Group (ABGSCe) 29,754 SEK 90 111.2 31.7 30.3 28.6 15.4 14.2 13.8 8.9 8.1 20.0 23.7 25.0 35.3 34.8 37.0 4.9 3.1 3.0 4.5 12.4 12.0 12.2 25.7
vs peer average 457% 68% 109% 119% 22% 59% 50% -16% 8% 26% 33% 72% 73% 65% 60% 114% 46% 71% -63% -3% -16% -6% -17%
vs peer median 397% 79% 102% 130% 35% 69% 125% 0% 13% 54% 66% 66% 107% 99% 90% 238% 106% 151% -63% -1% -7% 16% -23%
*Operational EBIT figures for Emb racer Group to ease comparison to IFRS 16 peers

Source: ABG Sundal Collier (only for Embracer), FactSet, company data

EV/Sales vs. EBIT margin, ‘19e EV/Sales vs. EBIT margin, ‘20e
14x 16x
11 Bit Studios
11 Bit Studios 14x
12x
Paradox
12x
10x
Paradox
10x
EV/Sales '20e
EV/Sales '19e

8x Koei Tecmo
Frontier 8x
Konami
Frontier
6x Code Masters Koei Tecmo
Sumo Group 6x
Capcom Sumo Group
4x Embracer 4x Square Enix Capcom
Square Enix Digital Bros Konami
2x Digital Bros 2x Embracer
Code Masters
Focus Home Focus Home
0x 0x
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
EBIT margin '19e EBIT margin '20e

Source: ABG Sundal Collier (for Embracer), FactSet, company data Source: ABG Sundal Collier (for Embracer), FactSet, company data

19 February 2020 ABG Sundal Collier 10

 Embracer Group

Income Statement (SEKm) Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020e
Sales 837 1,273 1,381 1,631 1,142 1,260 1,509 1,220
COGS -466 -895 -838 -741 -528 -635 -747 -526
Gross profit 371 377 542 889 614 625 762 694
Other operating items -165 -163 -216 -271 -225 -207 -244 -207
EBITDA 207 215 326 619 389 418 518 487
Depreciation and amortisation -154 -124 -174 -447 -308 -342 -427 -381
EBITA 53 91 152 172 81 76 91 106
EO items 0 0 0 0 0 0 0 0
Impairment and PPA amortisation 0 0 0 0 0 0 0 0
EBIT 53 91 152 172 81 76 91 106
Net financial items -4 -3 -4 -9 2 3 -15 -4
Pretax profit 49 88 148 163 83 80 76 102
Tax -15 -23 -34 -60 -31 -15 -43 -26
Net profit 33 65 114 103 53 65 34 75
Minority interest 0 0 0 0 0 0 0 0
Net profit discontinued 0 0 0 0 0 0 0 0
Net profit to shareholders 33 65 114 103 53 65 34 75
EPS 0.38 0.74 1.32 1.19 0.61 0.23 0.12 0.27
EPS Adj 0.38 0.74 1.32 1.19 0.61 0.23 0.12 0.27
Total extraordinary items after tax 0 0 0 0 0 0 0 0
Tax rate (%) 31.2 25.7 23.1 36.7 36.7 18.9 56.0 26.0
Gross margin (%) 44.4 29.7 39.3 54.5 53.8 49.6 50.5 56.9
EBITDA margin (%) 24.7 16.9 23.6 37.9 34.1 33.2 34.4 39.9
EBITA margin (%) 6.3 7.1 11.0 10.5 7.1 6.1 6.0 8.7
EBIT margin (%) 6.3 7.1 11.0 10.5 7.1 6.1 6.0 8.7
Pretax margin (%) 5.8 6.9 10.8 10.0 7.3 6.3 5.1 8.3
Net margin (%) 4.0 5.1 8.3 6.3 4.6 5.1 2.2 6.2
Growth rates Y/Y Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020e
Sales growth (%) 878.8 1,403.1 440.6 157.6 36.4 -1.0 9.3 -25.2
EBITDA growth (%) 421.1 521.3 108.6 174.0 88.2 94.7 58.8 -21.3
EBIT growth (%) 73.0 278.1 49.1 60.6 54.4 -15.8 -40.2 -38.6
Net profit growth (%) 44.1 241.9 55.6 27.2 57.3 -0.6 -70.6 -27.0
EPS growth (%) 44.1 241.9 55.6 27.2 57.3 -0.6 -70.6 -27.0
Adj earnings numbers Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020e
EBITDA Adj 207 215 326 619 389 418 518 487
EBITDA Adj margin (%) 24.7 16.9 23.6 37.9 34.1 33.2 34.4 39.9
EBITA Adj 53 91 152 172 81 76 91 106
EBITA Adj margin (%) 6.3 7.1 11.0 10.5 7.1 6.1 6.0 8.7
EBIT Adj 53 91 152 172 81 76 91 106
EBIT Adj margin (%) 6.3 7.1 11.0 10.5 7.1 6.1 6.0 8.7
Pretax profit Adj 49 88 148 163 83 80 76 102
Net profit Adj 33 65 114 103 53 65 34 75
Net profit to shareholders Adj 33 65 114 103 53 65 34 75
Net Adj margin (%) 4.0 5.1 8.3 6.3 4.6 5.1 2.2 6.2
Source: ABG Sundal Collier, Company data

19 February 2020 ABG Sundal Collier 11

 Embracer Group

Income Statement (SEKm) na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
Sales na na 178 213 302 508 5,754 5,130 7,993 8,134
COGS na na -58 -70 -119 -148 -3,261 -2,435 -3,802 -3,641
Gross profit na na 121 143 183 360 2,493 2,695 4,191 4,493
Other operating items na na -25 -38 -51 -87 -901 -882 -1,406 -1,480
EBITDA na na 95 105 132 273 1,593 1,813 2,786 3,013
Depreciation and amortisation na na -27 -38 -37 -84 -1,018 -1,459 -1,694 -1,873
Of which leasing depreciation na na 0 0 0 0 0 0 0 0
EBITA na na 68 67 95 188 575 354 1,092 1,140
EO items na na 0 0 0 0 0 0 0 0
Impairment and PPA amortisation na na 0 0 0 0 0 0 0 0
EBIT na na 68 67 95 188 575 354 1,092 1,140
Net financial items na na -1 -1 -2 -6 -29 -13 -20 -20
Pretax profit na na 67 66 93 182 545 341 1,072 1,120
Tax na na -15 -14 -21 -43 -149 -115 -279 -291
Net profit na na 52 52 72 139 397 226 794 829
Minority interest na na 0 -1 0 0 0 0 0 0
Net profit discontinued na na 0 0 0 0 0 0 0 0
Net profit to shareholders na na 52 51 72 139 397 226 794 829
EPS na na 0.87 0.85 1.00 1.76 4.22 0.81 2.83 2.95
EPS Adj na na 0.87 0.85 1.00 1.76 4.22 0.81 2.83 2.95
Total extraordinary items after tax na na 0 0 0 0 0 0 0 0
Leasing payments na na 0 0 0 0 0 0 0 0
Tax rate (%) na na 22.3 21.6 22.6 23.5 27.2 33.7 26.0 26.0
Gross margin (%) na na 67.7 67.1 60.6 70.9 43.3 52.5 52.4 55.2
EBITDA margin (%) na na 53.5 49.4 43.8 53.7 27.7 35.3 34.8 37.0
EBITA margin (%) na na 38.3 31.3 31.5 37.1 10.0 6.9 13.7 14.0
EBIT margin (%) na na 38.3 31.3 31.5 37.1 10.0 6.9 13.7 14.0
Pretax margin (%) na na 37.7 31.0 30.8 35.9 9.5 6.6 13.4 13.8
Net margin (%) na na 29.3 24.3 23.8 27.4 6.9 4.4 9.9 10.2
Growth rates Y/Y na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
Sales growth (%) na na na 19.6 41.8 68.1 1,033.7 -10.8 55.8 1.8
EBITDA growth (%) na na na 10.4 26.0 106.0 484.2 13.8 53.7 8.2
EBIT growth (%) na na na -2.3 42.7 98.1 205.3 -38.4 208.4 4.4
Net profit growth (%) na na na -0.8 39.1 93.4 185.1 -43.0 251.1 4.5
EPS growth (%) na na na -1.8 17.0 75.8 140.4 -80.9 251.1 4.5
Profitability na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
ROE (%) na na na 66.2 32.1 18.9 10.6 3.3 9.2 7.9
ROE Adj (%) na na na 66.2 32.1 18.9 10.6 3.3 9.2 7.9
ROCE (%) na na na 86.0 39.8 23.4 13.6 4.8 11.5 10.1
ROCE Adj(%) na na na 86.0 39.8 23.4 13.6 4.8 11.5 10.1
ROIC (%) na na na 96.0 51.9 35.4 17.5 5.1 11.0 8.6
ROIC Adj (%) na na na 96.0 51.9 35.4 17.5 5.1 11.0 8.6
Adj earnings numbers na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
EBITDA Adj na na 95 105 132 273 1,593 1,813 2,786 3,013
EBITDA Adj margin (%) na na 53.5 49.4 43.8 53.7 27.7 35.3 34.8 37.0
EBITDA lease Adj na na 95 105 132 273 1,593 1,813 2,786 3,013
EBITDA lease Adj margin (%) na na 53.5 49.4 43.8 53.7 27.7 35.3 34.8 37.0
EBITA Adj na na 68 67 95 188 575 354 1,092 1,140
EBITA Adj margin (%) na na 38.3 31.3 31.5 37.1 10.0 6.9 13.7 14.0
EBIT Adj na na 68 67 95 188 575 354 1,092 1,140
EBIT Adj margin (%) na na 38.3 31.3 31.5 37.1 10.0 6.9 13.7 14.0
Pretax profit Adj na na 67 66 93 182 545 341 1,072 1,120
Net profit Adj na na 52 52 72 139 397 226 794 829
Net profit to shareholders Adj na na 52 51 72 139 397 226 794 829
Net Adj margin (%) na na 29.3 24.3 23.8 27.4 6.9 4.4 9.9 10.2
Source: ABG Sundal Collier, Company data

19 February 2020 ABG Sundal Collier 12

 Embracer Group

Cash Flow Statement (SEKm) na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
EBITDA na na 95 105 132 273 1,593 1,813 2,786 3,013
Net financial items na na -1 -1 -2 -6 -29 -13 -20 -20
Paid tax na na -15 -14 -21 -43 -149 -115 -279 -291
Non-cash items na na 0 0 0 0 0 0 0 0
Cash flow before change in WC na na 79 90 109 224 1,415 1,685 2,487 2,702
Change in WC na na na 7 -26 -30 -294 1,125 -55 -8
Operating cash flow na na 112 97 84 194 1,121 1,609 2,432 2,694
CAPEX tangible fixed assets na na 0 0 -3 -5 -140 -51 -80 -81
CAPEX intangible fixed assets na na -36 -71 -157 -305 -1,335 -1,385 -2,158 -2,196
Acquisitions and disposals na na 0 0 0 -91 -1,787 -890 -950 0
Free cash flow na na 76 27 -76 -207 -2,142 -717 -756 417
Dividend paid na na 0 0 0 0 0 0 0 0
Share issues and buybacks na na 0 0 0 598 1,448 0 0 0
Lease liability amortisation na na 0 0 0 0 0 0 0 0
Other non cash items na na -56 -22 189 -10 2,381 -474 -1,050 0
Decrease in net IB debt na na na 5 113 381 1,688 9 -1,806 417
Balance Sheet (SEKm) na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
Goodwill na na 0 0 0 0 830 1,112 1,112 1,112
Other intangible assets na na 75 104 229 571 2,877 4,521 8,985 9,309
Tangible fixed assets na na 1 2 4 8 156 207 287 368
Right-of-use asset na na 0 0 0 0 0 0 0 0
Total other fixed assets na na 3 0 0 3 196 196 196 196
Fixed assets na na 78 106 232 582 4,059 6,036 10,581 10,985
Inventories na na 8 13 18 30 323 385 440 447
Receivables na na 26 31 47 90 1,297 1,539 1,798 1,830
Other current assets na na 0 0 0 0 0 0 0 0
Cash and liquid assets na na 18 26 167 627 2,929 2,938 1,132 1,549
Total assets na na 131 175 465 1,329 8,608 10,898 13,951 14,812
Shareholders equity na na 63 92 357 1,114 6,379 7,241 10,034 10,863
Minority na na 0 0 0 0 0 0 0 0
Total equity na na 63 92 357 1,114 6,379 7,241 10,034 10,863
Long-term debt na na 0 0 29 110 918 918 918 918
Pension debt na na 0 0 0 0 0 0 0 0
Convertible debt na na 0 0 0 0 0 0 0 0
Leasing liability na na 0 0 0 0 0 0 0 0
Total other long-term liabilities na na 0 0 0 0 0 0 0 0
Short-term debt na na 0 0 0 0 0 0 0 0
Accounts payable na na 68 84 80 105 1,311 1,539 1,798 1,830
Other current liabilities na na 0 0 0 0 0 1,200 1,200 1,200
Total liabilities and equity na na 131 175 465 1,329 8,608 10,898 13,951 14,812
Net IB debt na na -21 -26 -139 -520 -2,207 -2,216 -410 -827
Net IB debt excl. pension debt na na -21 -26 -139 -520 -2,207 -2,216 -410 -827
Net IB debt excl. leasing na na -21 -26 -139 -520 -2,207 -2,216 -410 -827
Capital invested na na 43 66 218 594 4,172 5,025 9,624 10,036
Working capital na na -33 -40 -15 15 309 -815 -760 -753
EV breakdown na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
Market cap. diluted (m) na na na na 797 2,093 4,525 29,754 29,754 29,754
Net IB debt Adj na na -18 -26 -139 -517 -2,011 -2,020 -214 -631
Market value of minority na na 0 0 0 0 0 0 0 0
Reversal of shares and participations na na 0 0 0 0 0 0 0 0
Reversal of conv. debt assumed equity na na 0 0 0 0 0 0 0 0
EV na na na na 658 1,576 2,514 27,734 29,540 29,123
Capital efficiency na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
Total assets turnover (%) na na na 139.0 94.3 56.6 115.8 52.6 64.3 56.6
Working capital/sales (%) na na na -17.2 -9.1 0.1 2.8 -4.9 -9.9 -9.3
Financial risk and debt service na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
Net debt/equity na na -0.33 -0.28 -0.39 -0.47 -0.35 -0.31 -0.04 -0.08
Net debt/market cap na na na na -0.23 -0.37 -0.43 -0.11 -0.01 -0.03
Equity ratio (%) na na 48.2 52.3 76.7 83.8 74.1 66.4 71.9 73.3
Net IB debt adj./equity na na -0.28 -0.28 -0.39 -0.46 -0.32 -0.28 -0.02 -0.06
Current ratio na na 0.77 0.83 2.92 7.11 3.47 1.78 1.12 1.26
EBITDA/net interest na na 98.25 177.17 62.47 44.05 54.55 136.30 142.12 150.67
Net IB debt/EBITDA na na -0.22 -0.24 -1.05 -1.91 -1.39 -1.22 -0.15 -0.27
Net IB debt/EBITDA lease Adj na na -0.22 -0.24 -1.05 -1.91 -1.39 -1.22 -0.15 -0.27
Interest cover na na 52.96 106.56 44.82 30.36 17.73 11.05 44.60 45.81
Source: ABG Sundal Collier, Company data

19 February 2020 ABG Sundal Collier 13

 Embracer Group

Valuation and Ratios (SEKm) na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
Shares outstanding adj. na na 60 60 61 74 94 281 281 281
Fully diluted shares Adj na na 60 60 72 79 94 281 281 281
EPS na na 0.87 0.85 1.00 1.76 4.22 0.81 2.83 2.95
Dividend per share Adj na na 0 0 0 0 0 0 0 0
EPS Adj na na 0.87 0.85 1.00 1.76 4.22 0.81 2.83 2.95
BVPS na na 1.05 1.53 5.83 15.07 67.86 25.80 35.75 38.70
BVPS Adj na na -0.19 -0.21 2.09 7.34 28.43 5.73 -0.23 1.58
Net IB debt / share na na -0.3 -0.4 -2.3 -7.0 -23.5 -7.9 -1.5 -2.9
Share price na na na na 11.07 26.42 48.13 106.00 106.00 106.00
Market cap. (m) na na na na 676 1,953 4,525 29,754 29,754 29,754
Valuation na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
P/E na na na na 11.1 15.0 11.4 131.6 37.5 35.9
EV/sales na na na na 2.18 3.11 0.44 5.41 3.70 3.58
EV/EBITDA na na na na 5.0 5.8 1.6 15.3 10.6 9.7
EV/EBITA na na na na 6.9 8.4 4.4 78.3 27.1 25.5
EV/EBIT na na na na 6.9 8.4 4.4 78.3 27.1 25.5
Dividend yield (%) na na na na 0 0 0 0 0 0
FCF yield (%) na na na na -9.5 -9.9 -47.3 -2.4 -2.5 1.4
Lease adj. FCF yield (%) na na na na -9.5 -9.9 -47.3 -2.4 -2.5 1.4
P/BVPS na na na na 1.90 1.75 0.71 4.11 2.97 2.74
P/BVPS Adj na na na na 5.29 3.60 1.69 18.51 -470.87 67.21
P/E Adj na na na na 11.1 15.0 11.4 131.6 37.5 35.9
EV/EBITDA Adj na na na na 5.0 5.8 1.6 15.3 10.6 9.7
EV/EBITA Adj na na na na 6.9 8.4 4.4 78.3 27.1 25.5
EV/EBIT Adj na na na na 6.9 8.4 4.4 78.3 27.1 25.5
EV/cap. employed na na na na 1.7 1.3 0.3 3.4 2.7 2.5
Investment ratios na na 2014 2015 2016 2017 2018 2019e 2020e 2021e
Capex/sales na na 20.2 33.1 52.9 61.1 25.6 28.0 28.0 28.0
Capex/depreciation na na 132.6 183.2 427.8 367.6 144.9 98.5 132.2 121.6
Capex tangibles/tangible fixed assets na na 0 0 72.4 60.5 90.2 24.8 27.9 22.1
Capex intangibles/definite intangibles na na 48.1 67.5 68.7 53.5 46.4 30.6 24.0 23.6
Depreciation on intangibles/definite intangibles na na 36.3 36.8 16.3 14.8 35.4 32.3 18.8 20.1
Depreciation on tangibles/tangibles na na 0 0 0 0 0 0 0 0
Source: ABG Sundal Collier, Company data

19 February 2020 ABG Sundal Collier 14

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Analyst certification
I/We, Jesper Birch-Jensen, Stefan Knutsson, the author(s) of this report, certify that not withstanding the existence of any such potential
conflicts of interests referred to below, the views expressed in this report accurately reflect my/our personal view about the companies and
securities covered in this report.

Analyst valuation methods

ABG Sundal Collier analysts may publish valuation ranges for stocks covered under Company Sponsored Research. These valuation ranges
rely on various valuation methods. One of the most frequently used methods is the valuation of a company by calculation of that company's
discounted cash flow (DCF). Another valuation method is the analysis of a company's return on capital employed relative to its cost of capital.
Finally, the analysts may analyse various valuation multiples (e.g. the P/E multiples and the EV/EBITDA multiples) relative to global industry
peers. In special cases, particularly for property companies and investment companies, the ratio of price to net asset value is considered.
Valuation ranges may be changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value
of a company's assets changes (in the cases of investment companies, property companies or insurance companies) or when factors
impacting the required rate of return change.

Important Company Specific Disclosure ssss

The following disclosures relate to the relationship between ABG Sundal Collier and its affiliates and the companies covered by ABG Sundal
Collier referred to in this research report.

Unless disclosed in this section, ABG Sundal Collier has no required regulatory disclosures to make in relation to an ownership position for the
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whom the report(s) refer(s) to, market making, managed or co-managed public offerings, compensation for provision of certain services,
directorship of the analyst, or a member of the analyst's household, or in relation to any contractual obligations to the issuance of this research
report.
ABG Sundal Collier has undertaken a contractual obligation to issue this report and receives predetermined compensation from the company
w
covered in this report.
mo

mo

ABG Sundal Collier is not aware of any other actual, material conflicts of interest of the analyst or ABG Sundal Collier of which the analyst
knows or has reason to know at the time of the publication of this report.
Production of report: 19/02/2020 22:25 CET.
All prices are as of market close on 18 February, 2020 unless otherwise noted.

Disclaimer
This document has been prepared by ABG Sundal Collier which is the marketing name referring to all or any of ABG Sundal Collier ASA, ABG
Sundal Collier AB or ABG Sundal Collier Partners LLP and any of their affiliated or associated companies and their directors, officers,
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This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an
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This research report does not, and does not attempt to contain everything material that there is to be said about Embracer Group.

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19 February 2020 ABG Sundal Collier 15

 EmbracerGroup
Embracer Group

transactions in any securities referred to herein should contact ABG Sundal Collier Inc., not its affiliates. Further information on the securities
referred to herein may be obtained from ABG Sundal Collier Inc., on request.

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© Copyright 2020 ABG Sundal Collier ASA

19 February 2020 ABG Sundal Collier 16

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ABGSC Research Department

Joint Global Head of Research
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Christer Linde +46 8 566 286 90

Strategy Metals & Mining

Christer Linde, Quant/Technical +46 8 566 286 90 Martin Melbye +47 22 01 61 37
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19 February 2020 ABG Sundal Collier 17