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| === Stock Performance === | | === Stock Performance === |
| [[File:Ubisoft Stock Price.png|frame|none]] | | [[File:Ubisoft Stock Price.png|left|frame]] |
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| Ubisoft's current share price is ~ €29 per share. Ubisoft has traded at a discount to peers over the past few years due to execution risk stemming from production delays, which constrains cash flows. While this is partly justified, it can be argued that the discount is oversized.
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| === Valuation === | | === Valuation === |
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| |€ 27.91 | | |€ 27.91 |
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| The above DCF outputs an implied share price of €29.93. A WACC of 10% and Terminal Growth Rate of 3% was used.
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| ==== Investment Thesis ==== | | ==== Investment Thesis ==== |
| Recommend a Neutral rating for Ubisoft. Despite having a strong line-up for FY2024, which includes four AAA titles, there are challenges to consider, such as a difficult market with fierce competition from other developers and the possibility of delays in game releases. However, Ubisoft does possess robust development capabilities and a diverse portfolio of brands that could drive revenue growth and margin expansion in the long term if current issues are resolved.
| | many new AAA games (strong lineup 2024), potential start of new lucrative franchises / IPs, appointed new independent board members with large successful track records to strengthen their corporate governance, risks around execution, which may significantly dampen upside potential of new franchises, which has been seen with e.g., Redfall, which was released by Bethesda earlier this year. |
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| The company's new strategy offers significant upside potential, which could be underappreciated by the market. Ubisoft trades at a 50% discount compared to its gaming peers, well below the 5-year average discount of 33%. This discount seems to be influenced by investors' perception of elevated execution risk at the company.<ref>Deutsche Bank. (2023) Deutsche Bank FY-23 Preview Closing chapter</ref>
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| While a certain discount is warranted due to Ubisoft's track record, it can be argued that the current discount is disproportionately large, especially considering the potential of its new strategy and the associated transmedia effect. Although the strategy may take time to materialize fully, it could lead to substantial benefits for Ubisoft in the future.
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| Furthermore, Barclays reports that the largest AAA games have recently outperformed while smaller AAAs have underperformed: "Our 7 interviewees noted that improvements to the stickiness of the major games and their ability to keep gamers within their ecosystem were a major competitive factor in the AAA market. They also felt it was becoming more difficult to deliver success in 1-5m unit AAA games. They pointed to the squeezed consumer as exacerbating rather than creating this trend." This new trend reinforces the fact that Ubisoft's new strategy to focus on their core franchises, most of which are considered 'Mega games', synergises with structural changes in the industry and is the right path of action.<ref>Barclays. (2023) Ubisoft, Embracer and CD Projekt: Mega games getting bigger?</ref>
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| However, consensus analyst reports don't seem to have the same opinion, and view the execution risk as significant. Furthermore, from gamer sentiment on the key franchise trailers, it can be seen that gamers are tired of recycled content. So, if Ubisoft focusing on their core franchises means recycling content, that could be met with significant negative reactions. Therefore, it may be prudent to sit and watch how Ubisoft develops over time.
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| ==== Risks to Price Target ====
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| Risks include:
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| • Better/worse than expected execution leading to a stronger/weaker release slate
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| • Better/worse reviews of large AAA games impacting sales
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| • Better/worse than expected macro and competitive environments in major markets
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| • Better/worse than expected sales from new sources of revenue including mobile & F2P
| | Valuation is not demanding given the underappreciated strategy Ubisoft now trades at a 50% discount relative to gaming peers, which is far below the 5-year average discount of 33%. This current discount is seemingly driven by investors' perception of elevated execution risk at the company. Whilst Ubisoft should trade at a discount given its track record, we believe that the current discount is outsized and the market under-appreciates the potential of its new strategy and the associated transmedia effect, which offer upside risk. Whilst this strategy may take time to materialize as the company reorganizes itself, in our view, when the storm settles Ubisoft should benefit greatly |
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| • FX changes
| | ==== Risks ==== |
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| == References == | | == References == |
| __INDEX__ | | __INDEX__ |
