(News Bulletin 247) – The Swiss bank downgraded its advice on the video game publisher for sale, doubting that the group could achieve a non-IFRS operating result of around 400 million euros for the current financial year. The bank also sees “risks” on the execution of game releases and believes that free cash flow will only become positive again in the financial year ending in March 2026.

Ubisoft faces a 2023-2024 exercise, which began on April 1, at great risk. Analysts are split on the video game publisher (10 recommend it buy, 10 are neutral, and 3 have a sell advice, according to investing.com’s consensus). UBS, this Friday, clearly ranked in the camp of the less enthusiastic research departments on the title.

The Swiss bank downgraded its advice by two notches, to “sell”, against “buy” previously, and reduced its target price to 20 euros, against 55 euros previously. On the Paris Stock Exchange, the Ubisoft title pitches, yielding 2.3% around 2:20 p.m., after having lost more than 5% in the morning.

Risks on game releases

Ubisoft, which published the results for its entire 2022-2023 financial year ended at the end of March, burned more than 400 million in cash over this financial year and recorded an IFRS operating loss of 500 million euros. But the company intends to raise the bar on the current year by targeting a positive non-IFRS operating profit of around 400 million euros. This thanks to an extremely extensive “pipeline” (a catalog of game releases), with five big titles, including the next “Assassins Creed”, the video game adaptation of the film franchise “Avatar” or even “Skull and Bones “, a piracy game that had been repeatedly postponed.

The bank believes that this “line-up” of triple AAA games is ambitious. It expects 30 million game sales units in total for the current fiscal year, which would make it the largest fiscal year in the group’s history in this area. But UBS sees risks on the proper commercial execution of these exits, especially as the economic context weakens in terms of consumer spending.

The bank also estimates that Ubisoft’s operating profit will rebound but will remain below the company’s forecast, to stand at 375 million euros in non-IFRS data, due to a decline in gross margin. and increases in marketing expenses.

See you on June 12

UBS is also cautious about Ubisoft’s cash generation, pointing out that free cash flow has been negative five times in the last ten fiscal years. The bank thus predicts that the company will still burn cash (taking free cash flow as a reference) in the financial years ending in March 2024 and March 2025, before returning to the green in the one ending in March 2026. And this at the condition that the company keep its promises in terms of savings (at least 200 million euros over the next two years). Ubisoft, for its part, did not give a cash generation forecast.

It remains to be seen whether Ubisoft will manage to thwart these forecasts for the current financial year, while its stock market price is evolving at levels deemed attractive by certain research departments, such as Credit Suisse, despite the uncertainties.

The video game publisher will hold its “Ubisoft Forward” conference in Los Angeles on June 12, which will be an opportunity to take stock of its upcoming releases. An event which will therefore be fiercely followed by gamers and investors who, moreover, are sometimes confused.