On Monday, HSBC analyst from the financial institution has raised the price target on Ubisoft Entertainment SA (UBI:FP) (OTC: UBSFY (OTC:UBSFY)) to €15.40, up from the previous €10.80, while maintaining a Hold rating on the stock. This adjustment follows reports suggesting that the Guillemot Family and Tencent might be considering taking the video game company private.
The analyst cited limited clarity on Ubisoft's profitability, referencing concerns previously expressed after Ubisoft's profit warning on September 27, 2024. The warning highlighted risks not only for the current year but also for future years, given the uncertainty surrounding the company's operations. Unlike the profit warning issued in January 2023, which provided some details on upcoming game titles, the latest update offers less insight and suggests increased execution risk for major releases.
The market's response to the potential buyout news was significant, with Ubisoft's share price increasing by over 30%. However, the analyst pointed out that using peer multiples, which often trade on a price-to-earnings (PE) range of 19-28x 1-year forward earnings per share (EPS), is not applicable to Ubisoft in its current state due to the high level of execution risk.
The revised price target is based on a target multiple of 17 times the forecasted fiscal year 2026 earnings per share of €0.90. This new target suggests an 8.5% upside potential for the stock. Despite the price target increase, the Hold rating reflects ongoing concerns about the downside risks to earnings.
In other recent news, Ubisoft Entertainment SA has seen a series of adjustments in its stock ratings and price targets from various analyst firms. Deutsche Bank downgraded Ubisoft's stock from "Buy" to "Hold," significantly reducing the price target from €24.00 to €15.00 due to lowered net bookings targets and game delays. BMO Capital Markets also adjusted Ubisoft's price target from €22.00 to €20.00 while maintaining an Outperform rating. The adjustments come in response to Ubisoft's announcement of lowered financial guidance for the second fiscal quarter and fiscal year 2025.
TD Cowen, while maintaining a Hold rating on Ubisoft, reduced its shares target from EUR27.00 to EUR23.00 following the postponement of two significant mobile game releases to fiscal year 2026. Exane BNP Paribas (OTC:BNPQY) downgraded Ubisoft's stock from "Outperform" to "Neutral," setting a new price target at €14.50 due to underperforming AAA titles and free-to-play games.
Additionally, Ubisoft's profitability forecast has been revised, with non-IFRS earnings before interest and taxes (EBIT) now expected to break even, a stark shift from the prior estimate of just above €400 million. The company has also adjusted its net bookings target for the fiscal year ending in March 2025 to €1.95 billion, a 16% year-over-year decline.
Recent developments also include a three-month delay to the release of "Assassin's Creed Shadows," now scheduled for February 15, which moves a substantial amount of revenue into the fiscal year 2026.
InvestingPro Insights
Recent InvestingPro data provides additional context to the HSBC analyst's assessment of Ubisoft Entertainment SA. The company's market cap stands at $1.95 billion, with a P/E ratio of 10.89, significantly lower than the peer multiples mentioned in the article. This discrepancy aligns with the analyst's view on the high execution risk and limited profitability clarity.
Ubisoft's impressive gross profit margin of 91.13% for the last twelve months ending Q4 2024 demonstrates the company's ability to maintain strong margins despite operational challenges. This strength is reflected in one of the InvestingPro Tips, which highlights Ubisoft's "impressive gross profit margins."
Another relevant InvestingPro Tip notes that the "stock price often moves in the opposite direction of the market," which may explain the significant 36.04% price increase over the past week, possibly in response to the buyout rumors mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Ubisoft, providing a deeper understanding of the company's financial position and market performance.
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