The sales figure during the quarter came in at SEK 1381m, beating our projection by roughly 11%. The main driver was better sales within both THQN Games (Vienna) and the Partner Publishing business. Deep Siler Games had a little lower turn-over during the quarter then our estimate. Profit came in a little below our expectations, but that is not something that worries us. On the whole, we find that the company delivers on our high expectations and continue to create value through smart M&A. 2019 will be an extremely exciting year with the strongest pipeline yet, and we look forward to following along on the growth journey ahead. Our current Base-case amounts to 270 SEK, before any changes following the report.
The Games segment include both THQ Nordic (Vienna) and Deep Silver. The most significant driver during the quarter was the release of Darksiders III. The sales of the game met the management expectation range, but they still state that it could have been better. Three DLC’s for the titles are expected during 2019, and in combination with discount sales and long-tail digital packages, management expects a nice contribution during the year. All investments, including marketing, was recouped during the quarter for the game, so it’s safe to say that the title is already profitable. Deep Silver had no major release during the quarter, something we already knew. The focus lies on the major release of Metro Exodus on the 15th of February. We will discuss more on Metro in our upcoming research report.
The quarter was stable for Partner Publishing. Notable releases during the quarter were Farming Simulator 19, Just Cause 4, Football Manager 2019 and Ride 3. The division also released 100+ other titles. The unit beat our projections by about 15%; it’s hard for us to pinpoint an exact reason for the outperformance as there are so many revenue streams. The management states that there are a similar amount of release volumes during Q5 as in Q4, but our overall impression is that the major titles are selling good and that the overall quality is a little bit higher. Notable games are Resident Evil 2 and Kingdom Hearts III.
The gross profit came in 5% below our projections and EBITDA 9%. The larger deviance to the EBIT is a factor of accounting principles and deprecations rates. THQ Nordic has started to report Operational EBIT, amounted to SEK 194.4m during Q4, as a better representation of underlying business performance. The measure is similar more similar to EBIT of IFRS companies. Estimating the cost levels for THQ Nordic is quite hard, as there are a lot of factors and moving parts so all in all we are very satisfied with the performance during the quarter. Our expectations were high, and the company delivered on them.
In conjunction with the release of the report the company also announced two exciting acquisitions: Warhorse Studios and 18Point2. The former being the developer and owner of the critically acclaimed game Kingdom Come: Deliverance, where Koch Media acted as a physical publisher. We will write more about the acquisitions
18POINT2 is a partner publishing company from Australia and was the 6th largest publisher of content during H2’18 in that market. The deal will increase the reach of the Koch Media publishing arm, and there will most likely be significant synergies.
We will write more about the acquisitions in our coming research update, but we can say that we find them directly value adding and conducted at attractive prices. For more details on the deals see the investor presentations at THQ Nordic’s IR page; Warhorse, 12POINT2.
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