Remedy: Creative Powerhouse Gearing Up
Redeye Research Note 2021/02/19
Subscription discount of 4%
The subscription price in the Share Issue was EUR 41.5 per Issue share, amounting to total proceeds of at least EUR 40 million after expenses. The subscription price of the issued shares is approximately 4% lower than the volume-weighted average price per share during the two-week trading period before the commencement of the share issue.
We think the discount was a little bit too high due to the fact that Remedy reported its earnings a week ago. But adding EUR 40 million to its EUR 20 million cash position is a welcome thing. And it is great that Remedy gets better access to capital with long-term institutional investors. Hopefully, this will also get some much-deserved spotlight on Remedy in the investor collective. I few percentages of discount is, therefore, a small price to pay for existing shareholders in the long run.
The new money will be invested in great things
The objective of the share issue is to support Remedy’s updated strategy. The company intends to use the proceeds of the share issue to finance the development of future game projects and possible self-financing and self-publishing of the selected future games as well as on the development of internal capabilities.
Massive EBIT margins will likely continue
Looking at our previous estimates, we realized a somewhat embarrassing mistake. Development capitalization was not added in our gross profit estimates which was the main reason for the EBIT beat in H2. The good thing is that this minor mistake made our estimates even more accurate. And it also means that our financial projections regarding gross profits are dampened, which will result in upward adjustments.
The increased investments will also increase development capitalization most likely. We, therefore, estimate the new level in EBIT margin will be closer to 40%, starting in H2 this year.
To summarize, we expect Remedy to invest smart and risk-conscious in the future as well. Project Vanguard and future projects (perhaps starring Max Payne…) will likely give great value both for gamers all around the world and Remedy shareholders. We will not make any changes on our fair value range of EUR 22-70 per share or our base case at EUR 50 per share at the moment.