Long Term Media And IP Expansion Will Support Future Earnings Potential

Catalysts

About Asmodee Group

Asmodee Group publishes and distributes tabletop games and trading card games globally across owned and partner franchises.

What are the underlying business or industry changes driving this perspective?

• Growing engagement with trading card games such as Pokemon, Magic: The Gathering, One Piece and Riftbound, together with Asmodee's role as a leading distributor in Europe and entry into other regions, can support continued high volume throughput. This would mainly flow into net sales and adjusted EBITDA.
• Media tie ins around CATAN, Ticket to Ride and Werewolves of Miller’s Hollow with platforms like Netflix and Banijay can widen brand awareness beyond existing hobby players. This can help existing titles sell over longer periods and support revenue resilience and gross margin mix.
• Exclusive tabletop rights for Lord of the Rings and The Hobbit through Middle earth Enterprise, combined with bolt on IP deals such as Cthulhu: Death May Die and Sheriff of Nottingham and the move to full ownership of Exploding Kittens, deepen the owned IP base and can gradually lift margins as royalty costs become a smaller share of sales.
• Cost discipline, reflected in personnel costs growing more slowly than sales, flat other operating expenses year on year and a capex light model at 1.4% of sales, points to an operating structure that can convert incremental revenue into a higher adjusted EBITDA margin and stronger earnings.
• Improved funding terms with the €320m bond refinancing, lower annual interest expense of about €5m, leverage around 1.9x and access to a €150m undrawn revolving facility give Asmodee room to keep pursuing M&A and IP acquisitions without heavy dilution. This can support earnings per share and free cash flow over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Asmodee Group's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.3% today to 8.2% in 3 years time.
• Analysts expect earnings to reach €140.4 million (and earnings per share of €0.57) by about February 2029, up from €-4.4 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €196.1 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 33.3x on those 2029 earnings, up from -546.2x today. This future PE is lower than the current PE for the SE Leisure industry at 37.3x.
• Analysts expect the number of shares outstanding to grow by 3.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Trading card games are currently a major growth driver, with partner published titles up 50.3% in the quarter and TCGs underpinning the 25.6% organic net sales growth. Any slowdown in long term TCG interest, fewer hit releases or weaker performance from key partners like Pokemon, Magic or One Piece could leave Asmodee exposed and limit revenue growth and EBITDA margins if board games and owned IP do not fully compensate.
• Board games published by Asmodee Studios recorded a 12.7% sales decline in the quarter, mainly in the U.S., and management repeatedly pointed to retailer inventory issues, FX and pricing pressure. If the broader board game category continues to see low single digit growth in Europe and flat trends in the U.S., there is a risk that Asmodee’s own titles underperform for longer, which could restrain net sales and keep gross margins under pressure.
• Transmedia and media deals, such as the partnerships with Netflix on CATAN and Ticket to Ride and the Banijay expansion of Werewolves of Miller’s Hollow, are intended to expand brand awareness over many years. Management also made clear that the direct revenue from these agreements is not the main objective, so if these projects fail to meaningfully lift long term demand for physical games, the marketing and content effort may have a weaker than expected impact on revenue resilience and earnings.
• The company is leaning into M&A and IP acquisitions, including Cthulhu: Death May Die, Sheriff of Nottingham and the planned cash out for the remaining 45% of Exploding Kittens, while also keeping leverage around 1.9x. If acquired IPs do not sustain consumer interest over the long run or if larger deals later push leverage higher, the combination of acquisition spend and integration risk could put pressure on free cash flow and net margins.
• Management highlighted strong free cash flow conversion, inventory reductions and a capex light model at 1.4% of sales, supported by disciplined personnel and operating expenses. They also acknowledged strategic inventory build, retailer credit limits in TCGs and rising tax payments, so if working capital needs stay structurally higher or tax and personnel costs trend up as the listed company structure matures, the long term conversion of EBITDA into free cash flow and earnings could be weaker than recent quarters suggest.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of SEK151.14 for Asmodee Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €1.7 billion, earnings will come to €140.4 million, and it would be trading on a PE ratio of 33.3x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of SEK110.38, the analyst price target of SEK151.14 is 27.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.