BMO Capital Markets Boosts Ubisoft Shares with Positive Outlook

Ubisoft Enjoys Stock Surge After BMO Upgrade

Shares of Ubisoft Entertainment experienced a notable increase following a recent upgrade from BMO Capital Markets. The stock surged by 5.1%, reaching €12.44 shortly after market opening, signaling optimism among investors.

Understanding the Upgrade

BMO Capital Markets elevated Ubisoft's stock rating to "outperform" from "market perform" after conducting an in-depth valuation analysis. This evaluation highlighted the company's current undervaluation and emphasized its significant potential moving forward. Analysts from BMO noted that Ubisoft shares are currently trading at approximately 2.7 times the expected FY26 EBITDA, which is considerably lower than its 10-year forward average of 10.5 times EBITDA.

The Implications of Valuation

This stark difference in valuation indicates that Ubisoft’s stock is trading at a 75% discount when compared to historical norms, suggesting that investors may find an attractive opportunity at these levels. Despite some initial mixed reviews regarding the upcoming game "Star Wars Outlaws," it's thought to have the potential for solid performance during the holiday season.

Future Game Releases as Growth Catalysts

Looking ahead, the anticipated release of "Assassin’s Creed Shadows" in November has emerged as a key growth catalyst for Ubisoft. While some gamers have raised concerns about a character in the game, Ubisoft’s management remains optimistic about the title's prospects, especially given the franchise’s recent successes.

Sales Predictions and Financial Outlook

Current projections indicate that the "Assassin’s Creed" franchise is expected to sell around 10 million units in FY25E, exceeding its 17-year historical average of 8.9 million units sold in the first twelve months post-launch. This projection is a noteworthy highlight in Ubisoft's strategy to strengthen its market position.

Cost Management Strategies

Ubisoft is navigating a comprehensive cost reduction initiative aimed at achieving savings of €200 million, with about €150 million already realized. As of March 31, 2024, the company reported having €1.2 billion in cash reserves, reinforcing its capacity to contend with potential financial challenges.

Future Adjustments and Projections

In light of changing market conditions, BMO Capital Markets has updated its forecasts for FY25E and FY26E, adjusting net bookings and operating income estimates downward by 3% and 4.5% respectively. The revised estimates indicate net bookings at $2.34 billion and operating income at $397 million, which reflect a 5% and 3.5% decrease from consensus expectations.

Target Price Adjustment

Consequently, BMO has adjusted its target price for Ubisoft shares from €27 to €22. Despite this reduction, the shares continue to present an appealing valuation, based on substantial discounts to the historical average EBITDA multiple. With a solid product lineup and strong management strategies, Ubisoft appears well-positioned for future growth.

Frequently Asked Questions

What prompted the recent rise in Ubisoft shares?

The increase followed an upgrade from BMO Capital Markets, which highlighted Ubisoft's undervaluation.

What is the new stock rating for Ubisoft?

Ubisoft's stock rating was upgraded to "outperform" from "market perform" by BMO Capital Markets.

What are the financial forecasts for Ubisoft?

BMO has adjusted FY25E net bookings to $2.34 billion and operating income to $397 million, both below consensus expectations.

How does the upcoming release of "Assassin’s Creed Shadows" influence Ubisoft's outlook?

The game is anticipated to be a significant growth catalyst, with expectations to break sales records for the franchise.

What fiscal strategies is Ubisoft implementing?

Ubisoft is undergoing a cost reduction program aimed at saving €200 million, with a substantial portion already realized.

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