THQ Nordic

Research note


THQ Nordic: Q2 preview, quarterly variations to be expected

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THQ Nordic will present their report for the second quarter of 2017 on Tuesday the 15th of August; we expect a healthy rise in net sales of 19% with an EBIT margin of 25%. Compared to the last quarter there were, as expected, fewer new game releases. The variations between quarters, due to the release schedules, will be visible. We eagerly await the high-season during Q4, when we expect the company to produce more income in one-quarter than during the whole of 2016. We urge investors to focus on the bigger picture; the ongoing development of THQ Nordic’s extensive portfolio of IP asset and smart publishing deals, and not on exact quarterly growth numbers.

For the second quarter, we expect to see sales of SEK 62m, where about SEK 13m is generated from releases during the period and SEK 49m as catalog sales. We view our estimates are somewhat conservative, but as THQ Nordic is a new company under our coverage, we rather make careful calculations than to positive ones. Compared to Q1, where we saw a sharp rise in sales, there have been fewer new releases which create lower income levels. An investor should take notice that the quarterly variations in a gaming company like THQ Nordic can be significant and is dependent on releases schedules. For example; the Q4 income should be massive and will likely exceed the total revenue during the whole of 2016, as the company will release a lot larger projects that have been under development for 1-3 years. We urge investors to focus on the bigger picture and not only on quarterly numbers.

Profitability wise we still expect to see a healthy 25% EBIT margin. Due to the extensive scalability and operational leverage the margin level can vary widely. Overall we expect to see relatively stable gross profit margin and that other OPEX stay at about the same levels as during Q1.

THQ Nordic has stated they will release information about two undisclosed development projects during Gamescom (23-26 Aug.) so we do not expect to see any new news about any yet disclosed upcoming game releases in conjunction with the report. We will as always present our first impression of the report as soon as possible following the publication.

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