Awaiting better times
In 2021 Ultimate Games released 83 games, but no major title was launched last year. Despite this, the company was able to increase revenues thanks to solid sales of Ultimate Fishing Simulator, House Flipper and other back catalogue games. On the other hand, its results were affected by a high revenue share and increasing costs of team maintenance. We expect 2022E to deliver substantial earnings improvement y/y driven by releases such as CMS Pocket Edition 2 (port of CMS18 on N. Switch), Mr. Prepper on consoles, Ultimate Fishing Simulator 2 on PC, Electrician Simulator and Ultimate Fishing Simulator on Oculus Quest 2. Nevertheless, we anticipate a major hit from the studio to be delivered in 2023E, as we expect Ultimate Hunting to be released this year, with our forecast of 150k copies sold in the initial 12M. We forecast Ultimate Games to deliver PLN 29.6m (+17% y/y) and PLN 35.7m (+21% y/y) in revenues in 2022E/23E and PLN 6.9m (+35% y/y) and PLN 10.1m (+46% y/y) in norm. net income. On our forecasts, the company trades at a P/E of 14.3x/9.8x in 2022E/23E, at a high, double digit discount to foreign peers. We maintain our HOLD recommendation and decrease our FV to PLN 18.0 (5% downside), due to a higher risk premium related to the war in Ukraine and the higher risk-free rate assumed in our model.
Ultimate Fishing Simulator 2.
The company recently completed playtests for the game, with an average player rating of 82.6%, which we perceive as a solid result. With the second part of playtests scheduled for July, we believe that early access release in autumn 2022E is a base case scenario (the company set release date for 25 August). Considering satisfactory sales on UFS1 with nearly 300k copies sold in the lifetime, we believe the sequel of the game should be able to reach 100k copies sold in 12M from release, becoming one of the major drivers for 2022E results.
Ultimate Hunting and next games.
Ultimate Hunting, with its heavy budget (up to PLN 5m), remains the major title in Ultimate Games’ pipeline. We currently expect the game to be released in 2023E and reach 150k copies sold in the initial 12M. Moreover, the company already announced that it is working on the next large-scale project, and therefore we expect another major new game in 2024E, translating to further growth in company earnings. We also believe that in the mid-term, the company could sign contracts for Switch ports of CSM21 and House Flipper 2.
Operating margin.
We forecast Ultimate Games to improve its operating margin to 27%/31% in 2022E/23E due to a higher share of new productions vs. console ports in the sales mix vs. 2021. In 2024E+ we expect margins to stabilize at 29-30% level.
Dividend.
In our view, Ultimate Games is likely to maintain its generous dividend policy (DPS of PLN 1.5 in 2022E, DY 7.9%) also in coming years with 2023E/24E DPS of PLN 1.1 and PLN 1.6 (DY of 5.9%/8.7% respectively).
Analysts Michał Wojciechowski Michal.Wojciechowski@ipopema.pl + 48 22 236 92 69 Marcin Nowak Marcin.Nowak@ipopema.pl + 48 22 236 92 44
