Starbreeze has commissioned Nordea Markets to produce a research report with the aim of providing investors with quality research on the company.
Three quarters to payday – Updated 6 March 2018
The game is on
Once a niche form of entertainment, gaming has evolved into a rapidly growing industry that pulls in more revenue than the film and music industry. The global gaming market generates over USD 100bn in revenue a year, with a burgeoning player base of over two billion in 2017, many of whom are spending more on games than ever before. Video game developer and publisher Starbreeze stands poised to profit from this booming market thanks to the popular titles it has under its belt and its diversified business offering.
The chance to make a killing
We have confidence in Starbreeze’s record and upcoming game releases and see the company cashing in peak sales of SEK 2.6bn over our forecast period to 2021E. It will likely make a killing from the launch of the much-anticipated OVERKILL’s The Walking Dead, slated for autumn 2018, and here we expect it to shift nearly 8 million copies over the course of three years. We base our estimates on the performance of comparable game titles, franchise interest, previous sales record and market trends.
Raising its game
To combat the potential swings in earnings between major game releases, Starbreeze has broadened its operations, adding a publishing arm and investing in emerging technologies. Its games as a service approach and releases of downloadable content bolster its games’ lifetime and generate substantial revenue even years after the initial game launch. This predictable revenue stream helps to de-risk the business model and will likely improve Starbreeze’s earnings stability.
Based on our fundamental DCF approach and assuming a WACC of between 7.9-9.1%, we derive an equity value per share between SEK 13.8 and SEK 15.9. This implies a 2020E EV/EBIT between 5.4x-6.4x and 2020E P/E of 9.0x-10.3x.
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Conflict of interest
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This report has been reviewed, for the purpose of verification of fact or sequence of facts, by the issuer of the relevant financial instruments mentioned in the report prior to publication. The review has led to changes of facts in the report. Completion date: 12 March 2018, 09:55 CET