Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

<ul>
<li>Reuters and several other news media outlets reported that <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> is looking to raise its stake in French game publisher Ubisoft as it seeks to expand overseas.</li>
<li>Tencent owns approx. 5.0% of Ubisoft which was acquired in 2018 and is said to have reached out to the founding family Guillemot to buy a stake from their ownership.</li>
<li>As we mentioned in our previous insight, Tencent has been excluded for the fourth time from new game approvals which had impacted its online games biz.</li>
</ul>


Reuters and several other news media outlets reported that Tencent (700 HK) is looking to raise its stake in French game publisher Ubisoft as it seeks to expand overseas.
Tencent owns approx. 5.0% of Ubisoft which was acquired in 2018 and is said to have reached out to the founding family Guillemot to buy a stake from their ownership.
As we mentioned in our previous insight, Tencent has been excluded for the fourth time from new game approvals which had impacted its online games biz.


Tencent Looking to Raise Its Stake in Ubisoft at a Huge Premium

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Equity Bottom-Up

<ul>
<li>Tencent’s increase in investment acquisition activity has coincided with a general weakness in equity prices and valuation levels.</li>
<li>Tencent management’s assessment of the fair value of its listed investee holdings, of RMB982.8bn on 31 December 2021, equates to roughly 27.4% of its market cap.</li>
<li>The market value of Tencent’s investee holdings in more-mature, Chinese-listed, internet-orientated holdings equates to roughly 9% of its current market cap.</li>
</ul>


Tencent’s increase in investment acquisition activity has coincided with a general weakness in equity prices and valuation levels.
Tencent management’s assessment of the fair value of its listed investee holdings, of RMB982.8bn on 31 December 2021, equates to roughly 27.4% of its market cap.
The market value of Tencent’s investee holdings in more-mature, Chinese-listed, internet-orientated holdings equates to roughly 9% of its current market cap.


Tencent: Investments up as Valuations Drop, Room for Another Significant Special in Specie Dividend

Japan Specialist

Mark Chadwick

<ul>
<li>Blockchain games are gaining popularity and traction with new players. There are now over 1.4m people playing blockchain games daily  </li>
<li>The economics of blockchain gaming and NFT is driving a flood of new investment into the space, with $4b committed by VCs in 2021. This year will be significantly higher  </li>
<li>Square Enix understands that blockchain games are here to stay despite opposition from “legacy fans.” We expect further announcements on blockchain gaming to drive the stock</li>
</ul>


Blockchain games are gaining popularity and traction with new players. There are now over 1.4m people playing blockchain games daily  
The economics of blockchain gaming and NFT is driving a flood of new investment into the space, with $4b committed by VCs in 2021. This year will be significantly higher  
Square Enix understands that blockchain games are here to stay despite opposition from “legacy fans.” We expect further announcements on blockchain gaming to drive the stock


European Event-Driven Analyst

Jesus Rodriguez Aguilar

On 19 July, Sixjoy Hong Kong Limited, a bidco subsidiary of <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and the Board of <a href="https://www.smartkarma.com/entities/sumo-group-plc" target="_blank" data-smartkarma-citation="entities:33770:1" rel="noopener">Sumo Group (SUMO LN)</a> reached an agreement to acquire a 91.25% stake in Sumo for 513p/share to be effected by means of a scheme of arrangement.
<ul class="">
<li>
For an implied equity value of £918.8 mn (as reported) and an implied EV of £925.7 mn.
</li>
<li>
8.9x EV/Fwd Revenue, 38.8x EV/Fwd EBITDA and 57.0x P/Fwd EPS.
<ul>
<li>
This is more generous than the 8x EV/Fwd EBITDA that Tencent offered for <a href="https://www.smartkarma.com/entities/funcom-se" target="_blank" data-smartkarma-citation="entities:28819:1" rel="noopener">Funcom NO (FUNCOM NO)</a>, or the 9x EV/Fwd EBITDA for a stake in <a href="https://www.smartkarma.com/entities/ubisoft-entertainment" target="_blank" data-smartkarma-citation="entities:21564:1" rel="noopener">UBISOFT Entertainment (UBI FP)</a>.
</li>
</ul>
</li>
<li>The irrevocable undertakings received plus the stake of Tencent represent in aggregate 35.7% of the share capital of Sumo.</li>
</ul>
Tencent's deep pockets will allow Sumo to increase the resources to increase scale and finance new game projects. Moreover, Sumo would greatly benefit from Tencent's know-how in its international expansion plans.
Transaction is subject to approval from shareholders of Sumo Group, third party clearance, the sanction of the scheme by the Court, the receipt of antitrust clearances in the United Kingdom and United States and a foreign-direct investment approval under the CFIUS regime in the United States (or lapsing of the applicable waiting periods), and other customary conditions.
The offer is in line with the European comparables median of 8.4x EV/Fwd Revenue. On this basis, the offer looks fair. Given both the irrevocable undertakings, the stake of Tencent, and the premium offered, a counteroffer seems highly unlikely.
This is a rock-solid trade, in my view. Completion should take place in about five months. On 19 July, the shares closed at 503p, a 40.5% increase. Gross spread is 1.95%, around 4% annualised.
Recommendation is long SUMO LN, TP 513p.

On 19 July, Sixjoy Hong Kong Limited, a bidco subsidiary of Tencent (700 HK) and the Board of Sumo Group (SUMO LN) reached an agreement to acquire a 91.25% stake in Sumo for 513p/share to be effected by means of a scheme of arrangement.


For an implied equity value of £918.8 mn (as reported) and an implied EV of £925.7 mn.


8.9x EV/Fwd Revenue, 38.8x EV/Fwd EBITDA and 57.0x P/Fwd EPS.


This is more generous than the 8x EV/Fwd EBITDA that Tencent offered for Funcom NO (FUNCOM NO), or the 9x EV/Fwd EBITDA for a stake in UBISOFT Entertainment (UBI FP).



The irrevocable undertakings received plus the stake of Tencent represent in aggregate 35.7% of the share capital of Sumo.

Tencent's deep pockets will allow Sumo to increase the resources to increase scale and finance new game projects. Moreover, Sumo would greatly benefit from Tencent's know-how in its international expansion plans.
Transaction is subject to approval from shareholders of Sumo Group, third party clearance, the sanction of the scheme by the Court, the receipt of antitrust clearances in the United Kingdom and United States and a foreign-direct investment approval under the CFIUS regime in the United States (or lapsing of the applicable waiting periods), and other customary conditions.
The offer is in line with the European comparables median of 8.4x EV/Fwd Revenue. On this basis, the offer looks fair. Given both the irrevocable undertakings, the stake of Tencent, and the premium offered, a counteroffer seems highly unlikely.
This is a rock-solid trade, in my view. Completion should take place in about five months. On 19 July, the shares closed at 503p, a 40.5% increase. Gross spread is 1.95%, around 4% annualised.
Recommendation is long SUMO LN, TP 513p.

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Video game stocks have been a major focus of ours for several months with the space outperforming the broad market amid the coronavirus pandemic. The stay at home theme remains in full force and with most of the space breaking out simultaneously, it gives us added confidence that price and RS appreciation is likely just getting started. In today’s report we highlight our favorite technical setups, all offering compelling and timely opportunities to add exposure at current levels. Buy: SE-US (our favorite setup), EA-US, ATVI-US, ZNGA-US, CDR-PL, UBI-FR, and 9697-JP

Video game stocks have been a major focus of ours for several months with the space outperforming the broad market amid the coronavirus pandemic. The stay at home theme remains in full force and with most of the space breaking out simultaneously, it gives us added confidence that price and RS appreciation is likely just getting started. In today’s report we highlight our favorite technical setups, all offering compelling and timely opportunities to add exposure at current levels. Buy: SE-US (our favorite setup), EA-US, ATVI-US, ZNGA-US, CDR-PL, UBI-FR, and 9697-JP

Video Game Stocks Breaking Out; Buy SE-US, EA-US, ATVI-US, ZNGA-US, CDR-PL, UBI-FR, and 9697-JP

France

UbiSoft Entertainment SA produces, edits, and distributes video games.  The Company also produces educational software.  UbiSoft's products are sold internationally on CD-Rom and through the Internet.  The Company also licenses its games to Nintendo, Sega, and Sony.

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UBISOFT Entertainment (UBI FP)

Tencent Looking to Raise Its Stake in Ubisoft at a Huge Premium

Tencent is looking to raise its stake in Ubisoft as it seeks to expand overseas. Stake increase would help Tencent expand into console gaming,...

Shifara Samsudeen, ACMA, CGMA

Tencent: Investments up as Valuations Drop, Room for Another Significant Special in Specie Dividend

In this insight, we analyse Tencent’s recent investment activity and notable investee holdings to evaluate the potential for another meaningful...

Wium Malan, CFA

Square Enix – WAGMI

Blockchain games really took off last year, garnering the attention of both gamers and investors. Square Enix will embrace blockchain games/NFTs...

Mark Chadwick

Tencent/Sumo: Recommended Cash Offer

This is a rock-solid trade, 1.9% gross spread, c.4% annualised. Completion should take place in about five months. On 19 July, the shares closed at...

Jesus Rodriguez Aguilar

Video Game Stocks Breaking Out; Buy SE-US, EA-US, ATVI-US, ZNGA-US, CDR-PL, UBI-FR, and 9697-JP

Video game stocks have been a major focus of ours for several months with the space outperforming the broad market amid the coronavirus pandemic....

Vermilion Research

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