Analyst: Ubisoft Set to Continue to Outperform

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The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

We believe Ubisoft’s (UBSFY.PK) lineup positions it for significant growth in FY:15. The company provided initial FY:15 guidance for sales of at least 1,400 million euros and non-IFRS operating income of at least 150 million euros. In FY:14, sales were 1,007 million euros and the non-IFRS operating loss was 66 million euros. The company has five high-profile releases (Assassin’s Creed Unity, Far Cry 4, Just Dance 4, The Crew, and Watch Dogs) in FY:15, and management believes that it may have three of the industry’s top 10 best-selling games of the year.

Improving digital strength. Digital sales increased 32 percent y-o-y to 195 million euros, driven by digital distribution and sales of additional content (items and DLC). For FY:15, the company has a digital target of 25 percent of sales, or roughly 350 million euros, representing growth of roughly 80 percent.

Ubisoft has strong expectations for FY:16, as well. When management announced the delays of Watch Dogs and The Crew last October, it initiated operating income guidance for FY:15 of at least 150 million euros and for FY:16 of at least 200 million euros, both of which it confirmed again on Thursday. In our view, this bullish guidance highlights the company’s strong earnings growth potential should it avoid additional game delays. Although Tom Clancy’s The Division is no longer included in FY:15 guidance (now described as a CY:15 release), the company’s release slate has become more predictable in recent quarters.

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