Quality-first, Business-perspective, Long-term, Urbem (HK) Limited

Urbem Capital

Quality-first, Business-perspective, Long-term

Equity Bottom-Up

<ul>
<li>The Shenzhen-based game developer trades at an attractive valuation;</li>
<li>Meanwhile, the business has been growing at a nearly triple-digit rate while maintaining an above 30% return on equity and invested capital;</li>
<li>Should investors buy into this (seemingly quality) growth story?  We want to take a deep dive.</li>
</ul>


The Shenzhen-based game developer trades at an attractive valuation;
Meanwhile, the business has been growing at a nearly triple-digit rate while maintaining an above 30% return on equity and invested capital;
Should investors buy into this (seemingly quality) growth story?  We want to take a deep dive.


European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Electronic Arts agreed on 14 December a reported £945 mn cash counter-offer for Codemasters (604p per share) to disrupt Take-Two's £759 mn already accepted cash and shares offer.
<ul style="list-style-type: disc;">
<li>
For an implied EV of £892.15 mn (Codemasters has £50.747 mn of net cash).
</li>
<li>
The deal represents 7.4x EV/Fwd Revenue, 28.5x EV/Fwd EBITDA and 31.5x P/Fwd E.
</li>
<li>The court meeting and the EGM are expected to be held on December 21, 2020. The transaction is expected to close in Q1 2021.</li>
</ul>
<ul>
<li>
Codemasters shares went up by almost 20% to 640p, above the 604p offer price, suggesting market believes in the possibility of an increased bid by Take-Two. 
</li>
<li>
Take-Two has $2.2 bn of net cash.
</li>
</ul>
No longer the main objective is to sell the largest number of consoles, but to accumulate the largest number of players. Electronic Arts is interested in the racing games business of Codemasters. The move feels defensive because Take-Two is one of its main rivals and many of Electronic Arts' franchises are weakening relative to leaders.
A deal with Electronic Arts would bring under the same umbrella EA's sports and driving games (FIFA soccer and Need for Speed franchises) and Codemasters’ racing simulators.
By using a blended average of the median multiples of EV/Fwd EBITDA and P/Fwd E, a valuation up to 720p per share could be justified, c. 10% upside to current levels (and 19% over EA's bid). Recommendation is LONG Codemasters, TP 720p.
<ul>
<li>an equity value of £1,098 mn (EV of £1,047 mn).</li>
</ul>
Codemasters shares closed at 658p on 16 December, c. 9% above EA's offer.
A shareholder meeting to consider the offer has been scheduled for next Monday.

Electronic Arts agreed on 14 December a reported £945 mn cash counter-offer for Codemasters (604p per share) to disrupt Take-Two's £759 mn already accepted cash and shares offer.


For an implied EV of £892.15 mn (Codemasters has £50.747 mn of net cash).


The deal represents 7.4x EV/Fwd Revenue, 28.5x EV/Fwd EBITDA and 31.5x P/Fwd E.

The court meeting and the EGM are expected to be held on December 21, 2020. The transaction is expected to close in Q1 2021.



Codemasters shares went up by almost 20% to 640p, above the 604p offer price, suggesting market believes in the possibility of an increased bid by Take-Two. 


Take-Two has $2.2 bn of net cash.


No longer the main objective is to sell the largest number of consoles, but to accumulate the largest number of players. Electronic Arts is interested in the racing games business of Codemasters. The move feels defensive because Take-Two is one of its main rivals and many of Electronic Arts' franchises are weakening relative to leaders.
A deal with Electronic Arts would bring under the same umbrella EA's sports and driving games (FIFA soccer and Need for Speed franchises) and Codemasters’ racing simulators.
By using a blended average of the median multiples of EV/Fwd EBITDA and P/Fwd E, a valuation up to 720p per share could be justified, c. 10% upside to current levels (and 19% over EA's bid). Recommendation is LONG Codemasters, TP 720p.

an equity value of £1,098 mn (EV of £1,047 mn).

Codemasters shares closed at 658p on 16 December, c. 9% above EA's offer.
A shareholder meeting to consider the offer has been scheduled for next Monday.

Electronic Arts' Disruptive Counter-Offer

<ul>
<li>IGG looks like an unusual beaten-down stock, as the industry that the company operates is actually benefiting from the pandemic and booming;</li>
<li>Is Mr. Market misunderstanding any of the business fundamentals, or is he correct in terms of any possible value trap?</li>
</ul>


IGG looks like an unusual beaten-down stock, as the industry that the company operates is actually benefiting from the pandemic and booming;
Is Mr. Market misunderstanding any of the business fundamentals, or is he correct in terms of any possible value trap?


TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

The TikTok saga is far from over. Heck, by the time you read this, China or Trump may have nixed the deal on national security concerns, national dignity concerns, or just on a whim. We sketch out updated thoughts on valuation and the companies affected by the deal. Hint: We like Microsoft's ZeniMax acquisition. <div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div>

The TikTok saga is far from over. Heck, by the time you read this, China or Trump may have nixed the deal on national security concerns, national dignity concerns, or just on a whim. We sketch out updated thoughts on valuation and the companies affected by the deal. Hint: We like Microsoft's ZeniMax acquisition. Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

TikTok: Microsoft's "Console-Ation" Prize

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/unity-software-inc" target="_blank" data-smartkarma-citation="entities:29267:1" rel="noopener">Unity Software Inc (U US)</a> plans to complete its IPO in the coming days. The company is seeking to raise $1.05 billion in this IPO selling 25 million shares at $34 to $42 per share. At the high end of the IPO price range, Unity Software would be valued at about $11 billion. Unity Software was valued at about $6 billion in July 2019 in its last round of private funding round so, at the high end of the IPO price range, it would be nearly double its last private market valuation about a year ago.  Unity Software's IPO process is using a <a href="https://www.ft.com/content/8ce0c9d1-ad52-4efa-a23f-1467e308c7c4" target="_blank" rel="noopener">new bidding process. </a>According to FT, "Prospective institutional investors will be asked how many shares they wish to buy, and at what price, by an online system managed by Goldman Sachs, according to a notice sent out to explain the new process. Investors can place multiple bids at difference prices. Unity will select a price for the offering after the bids are entered, allocating a portion of the shares to all investors who indicated interest above that price level."<div class="content-highlight">Our valuation analysis suggests an implied market cap of $15.6 billion and a target price of $58.60 per share for Unity Software. The IPO price range is from $34 to $42 per share and assuming the IPO is completed at the high end of the IPO price range, our target price would represent a 39% upside to this level. In fact, given the strong global demand for excellent software and game-related companies, there is a higher probability that Unity Software IPO trades in the mid-high end of our valuation range ($58.60 to $70.90 per share).</div>

Unity Software Inc (U US) plans to complete its IPO in the coming days. The company is seeking to raise $1.05 billion in this IPO selling 25 million shares at $34 to $42 per share. At the high end of the IPO price range, Unity Software would be valued at about $11 billion. Unity Software was valued at about $6 billion in July 2019 in its last round of private funding round so, at the high end of the IPO price range, it would be nearly double its last private market valuation about a year ago.  Unity Software's IPO process is using a new bidding process. According to FT, "Prospective institutional investors will be asked how many shares they wish to buy, and at what price, by an online system managed by Goldman Sachs, according to a notice sent out to explain the new process. Investors can place multiple bids at difference prices. Unity will select a price for the offering after the bids are entered, allocating a portion of the shares to all investors who indicated interest above that price level."Our valuation analysis suggests an implied market cap of $15.6 billion and a target price of $58.60 per share for Unity Software. The IPO price range is from $34 to $42 per share and assuming the IPO is completed at the high end of the IPO price range, our target price would represent a 39% upside to this level. In fact, given the strong global demand for excellent software and game-related companies, there is a higher probability that Unity Software IPO trades in the mid-high end of our valuation range ($58.60 to $70.90 per share).

United States

Take-Two Interactive Software, Inc. develops, markets, distributes, and publishes interactive entertainment software games and accessories.  The Company's products are for console systems, handheld gaming systems and personal computers (including smartphones and tablets) and are delivered through physical retail, digital download, online and cloud streaming services.

Take Two Interactive Software, Inc (TTWO US)

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Take Two Interactive Software, Inc (TTWO US)

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