Pieter Hundersmarck of Flagship Asset Management presented his thesis on Ubisoft Entertainment (France: UEN) at European Investing Summit 2021.

Thesis summary:

Ubisoft is a founder-led video gaming business founded in France in 1986 by the five Guillemot brothers. Yves Guillemot (CEO) still leads the business.

Ubisoft is facing three major headwinds, which provide a profit-making opportunity. The first is a dramatic change in its game development strategy, with a focus on live games and mobile games, which has resulted in delays to some its largest franchises. The second is inefficiency in its operations, with too little “subscription” or recurring revenue from in-game sales versus one-off game purchase revenue, leading to choppy revenue, as well as a boated cost base from in-sourcing all of its own game development, which holds back profitability. Third, the company is grappling with various allegations of discrimination and harassment across its workplaces.

The investment case for Ubisoft is a turnaround, with limited downside and high potential upside. The company should earn EUR 2.40 per share in March 2022, putting it on 20x earnings, a deep discount to the sector and its own history. On a price-to-sales multiple, the company screens cheaply as a buyout target.

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About the instructor:

Pieter Hundersmarck is the global portfolio manager for Flagship Asset Management, a specialist global investment management boutique based in Cape Town, South Africa. Flagship (est. 2001) is one of South Africa’s most awarded boutique asset managers, with deep experience across asset classes in developed and emerging markets. Pieter has been investing internationally for over 15 years. Prior to Flagship, he worked at Coronation Fund Managers for 10 years, and also co-managed a global equities boutique at Old Mutual Investment Group. Pieter holds a BCom (Economics) from Stellenbosch University and an MSc Finance from Nyenrode Universiteit in the Netherlands.