By Senad Karaahmetovic
Ubisoft (EPA:UBIP) is trading more than 2% lower in Paris today after Jefferies analysts resumed research coverage at Underperform after previously rating the stock as Buy.
The French video entertainment company is known for developing popular games like Assassin's Creed, Far Cry, For Honor, Just Dance, and Prince of Persia among others.
Jefferies’ new price target on Ubisoft stock is €17 (€1 = $1.083) per share, signaling a downside risk of over 10% relative to yesterday’s closing price. As of 06:00 ET (11:00 GMT), Ubisoft stock trades at €18.76, down 2.5% on the day.
Analysts believe Ubisoft is in the early innings of a multi-downgrade cycle.
“We see limited evidence to justify an improved risk-reward, and potentially see increased risk as revenue growth is dependent on either new and unproven IPs coming to market - e.g. "Skull and Bones", "Avatar: Frontiers of Pandora", or developing games for platforms Ubisoft is not that familiar with - e.g. mobile. We are not saying we expect Ubisoft to fail in these endeavours, but unproven IPs are the riskiest to market and succeeding on mobile might still require further years of investments,” the analysts wrote in a client note.
Moreover, Jefferies analysts note a high-cost base, “optimistic” FY23 and FY24 revenue sell-side consensus, as well as the fact that Ubisoft is in a net debt position.
“We view Ubisoft as a 'show-me' story where the market will need to build confidence on the upside, especially after it canceled a total of seven games in development within six months,” they added.
Elsewhere, Frontier Developments (LON:FDEV) is cut to Hold from Buy, while Jefferies upgraded Team17 (LON:TM17) to Hold from Underperform. Similarly, Rovio (HE:ROVIO) is upgraded to Buy from Hold, CD PROJEKT (WA:CDR) double upgraded to Buy from Underperform while Keywords Studios (LON:KWS) is initiated at Buy.