THQ Nordic

Research note


THQ Nordic: Q2 preview, focus on H2 and Gamescom

THQ Nordic is set to release their report for the second quarter of 2018 on the 15th of August. We expect to see some margin pressure during Q2 due to relatively low business volumes within Partner Publishing. We will instead put our focus on upcoming Gamescom, release schedule during H2 and the possibilities of the capital rose in June. Our current Base-case amounts to 212 SEK per share.

For Q2 we expect to see a drop in volumes as there are fewer significant releases within THQ Nordic and Deep Silver. Kingdom Come and MX vs. ATV (that was released late in Q1) will likely drive the backlog sales to some degree. Wreckfest, a publishing deal, seems to have delivered strong sales figures. However we have low visibility into the actual numbers, so we do not make any forecast adjustments. The business volumes within Partner Publishing/film will be lower compared to both Q1’17 and the previous quarter, due to a smaller release schedule. We expect to see increasing volumes during H2. When comparing to Q1’18, it’s better to look at the proforma figure of SEK 939m, as such we project a rather significant drop. For Q2’18 we expect to see net sales of about SEK 598m.

The lower volumes will likely hurt the margin levels as the company now has a lot of “semi-fixed” costs with the larger head-count at the Partner Publishing/film segment. We believe that the gross profit margin will be lower than Q1 because the high margin business within “old” THQ Nordic will stand for a smaller part of income mix. We expect that the company will produce and EBIT in the region of SEK 26m. A significant share of the company’s annual profit and sales will be generated during H2.

More importantly, Gamescom (21-25th of August) is coming up, and we believe impressions of coming releases from critics and fans are a more important than the outcome of a low volume quarter like Q2 will be. We are of course curious about what the management has planned for the capital raised in the directed share issue. As always we advocate patient and value-adding M&A than stressed deals to boost short-term growth, there is no doubt in our mind that THQ Nordic’s competent management team will do just that. Our current Base-case amounts to 212 SEK per share.

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