Sometimes milestone payments do not adapt to the quarterly economy that well, which is shown in the Q1-business review. Reported revenue during Q1 was EUR6.9m versus our estimated EUR11.1m. With a cost base largely fixed this resulted in an EBIT of EUR-5.6m in contrast to our expected EBIT of EUR-0.7m. Remedy is investing in three of its five ongoing games, which of course is potentially good for the future profitability.

In its guidance Remedy plan to release one game each year starting now in 2023 with Alan Wake 2. We believe the game will be released during the period between August and October 2023, to prevent a potentially more competitive period closer to Christmas.

All game projects are in the proof of concept stage. Control 2 progressed into this production stage during january this year and Max Payne Remake progressed later in Q1 2023.

Max Payne is expected in H1 2025: The much anticipated Max Payne Remake has progressed into “proof of concept” stage during Q1. We believe our previous estimate of a H2 2025 release for this game is likely too conservative. Max Payne is a remake of two already released games. With much of the framework already made, this results in a shorter production time.

Considering the low figures in our interval regarding production phases (shown above) this should mean Max Payne could be released already in Q1 or Q2 2025 (instead of our previous estimate H2 2025). It is also important to understand that a remake is not a remaster (like the released Alan Wake Remaster). A remake is like the word says, a total remake of a game giving the player a totally new experience which also mean a much larger commercial potential.

Condor is expected to be released in 2024: According to the earnings call with Remedy there are definitely synergies between both single-player Control-games and Condor which is also based on the universe of Control. The multiplayer game Condor will have much code and models from the world-building, the art, and core mechanics from Control from the start which will make this process advance faster than for example Vanguard we expect.

We believe that Vanguard is the most uncertain project in Remedy’s game pipeline. The game has a different business model (free to play), it is built on a different game engine (Unreal 5), and the game development has already progressed slower than expected. On the positive side, Remedy is collaborating with the world’s biggest player within free-to-play, namely Tencent. And we also estimate that Tencent is financing at least 80% of the development which lowers the risk of the project significantly.

Estimate changes: We have lowered our top-line estimate for 2024, from revenues of EUR39m to EUR35m. Remedy has already begun to scale down its team size working on Alan Wake 2, which means some of this workforce will start working on Max Payne (100% external financing) and some of them will start working on Control 2 (a game that is 50% financed by Remedy). If we assume that half o this workforce is dedicated to Max Payne and the other half to Control 2, this means a reduction of development fees connected to these people is reduced by 25%.

We estimate that the cost base will be roughly at the same levels as previously expected, which means that we have changed our estimated EBIT from EUR-6.4m to EUR-10.5m.

In 2024 our estimates I almost unchanged with revenues of EUR62.4m and an EBIT of EUR12.8m. We estimate EUR43m in development fees and EUR17m in royalties primarily for Alan Wake 2.

2025 offers a lot of potential for Remedy if our assumptions are accurate regarding its game pipeline. With a late 2024 release of Condor (multiplayer within the world of Control) and an early release of Max Payne Remake in 2025 the potential royalty income could be significant. For this year we estimate revenues of EUR73m with a 27% EBIT margin resulting in an potential EBIT of EUR19.7m.

Base Case EUR 30

CAGR of about 29% between 2023-2026 with EBIT margin expanding to 27%.

Terminal growth of 2% with terminal EBIT margin of 33%.

Our base case assumes relatively successful launches of Alan Wake, Control and Max Payne. We have lower expectations of its live-service games, due to a nonexistent track record.

Bear Case EUR 13

CAGR of about 19% between 2023-2026 with EBIT margin expanding to 18%.

Terminal growth of 2% with terminal EBIT margin of 25%.

Our bear case assumes mixed commercial results in launches of Alan Wake, Control and Max Payne. We have lower expectations of its live-service games, due to a nonexistent track record.

Bull Case 50

CAGR of about 33% between 2023-2026 with EBIT margin expanding to 35%.

Terminal growth of 2% with terminal EBIT margin of 36%.

Our bull case assumes successful launches of Alan Wake, Control and Max Payne. We also have relatively high expectations of its live-service games.

Remedy is traded with a substantial premium compared to peers. In the peer table above, we have chosen to look at the financial numbers for 2024, when Remedy potentially gets significant royalty income yet again. The closest peer with a similar premium is CD Projekt Red and Paradox. CD Projekt Red (EV/EBIT: 43x) and Paradox (EV/EBIT: 24x). Remedy is traded around EV/EBIT: 21x according to our estimates shown at the bottom of the peer table. All these three game studios own strong IPs, have a loyal customer base, and are obvious takeover targets. We also estimate that Remedy will show considerably higher growth than its peers especially in 2024 but also in 2025, which in our view justifies the premium valuation of Remedy.

Alan Wake 2 is a major release

In its upcoming game (Alan Wake 2), which will be released in 2023 the budget is double as high as in its latest game called Control. We estimate the game must sell 2.15 million copies before Remedy can receive a 50% profit share. The game will start to generate royalty income in 2024 according to our assumptions. A better outcome would likely have a positive impact on the stock we believe.

Remedy is possibly acquired in 2024-2025

We believe Remedy is one of the most obvious acquisition targets in the Nordic gaming industry. On the top of our buyer's list sits Epic Games, and the timing is most likely after the release of Alan Wake 2. Secondly “most likely” we believe one of the three biggest players in the industry is a potential buyer namely Sony, Tencent, and Microsoft (in that order). Thirdly on our buyer's list, we see Take-Two, the owner of the Remedy-created IP Max Payne.