<h6>Q4 adj. EBIT SEK 903m, up 51% vs. ABG, 45% vs. cons</h6><h6>Raising adj. EBIT by ~7% 21/22e-22/23e on Q4 report</h6><h6>SOTP fair value range up to 225-345 (215-325) per share</h6><strong>Games yield record 82% of sales, 89% via digital channels</strong><br />Embracer delivered a very strong quarter today, which beat Infront consensus expectations. Adj. EBIT was SEK 903m, up 51% vs. ABGSCe and +45% vs. consensus. We attribute the profitability beat to three factors: 1) a large contribution from the Games segment (generating 82% of revenues vs. consensus 78%) of which 89% was generated via digital channels (up 15pp y-o-y) thus driving a strong gross margin of 59.9%; 2) lower than expected other external expenses due to favourable conditions for sales and marketing activities in Jan-March ’21 (confirmed by mobile gaming peers); and 3) by reporting profit of SEK 113m via Embracer’s minority ownership in Valheim developer. Lastly, the adj. EPS of SEK 2.07 grew 112% y-o-y.<br /><br /><strong>Raising adj. EBIT by ~7% for 21/22e-22/23e</strong><br />After the Q4’20/21 report, we increase our adj. EBIT estimates by 7.4-6.9% for 21/22e-22/23e on the back of the strong report. In terms of Q1’21/22e, new games with a development cost in the area of SEK 300-350m will be released, where we estimate that Biomutant will account for a majority since the remaining titles are mainly re-releases on new platforms (see page 5). We factor in 900,000 Biomutant copies sold in Q1, which we think is relatively conservative given current sales rankings.<br /><br /><strong>Raising fair value range to SEK 225-345</strong><br />We raise our SOTP fair value to SEK 225-345 per share. Embracer is now trading at EV/adj. EBIT of ~19x on 21/22e, 1% above the five-year historical average. This is despite Embracer having a new game pipeline in the SEK 2.8-3.3bn development cost (recent M&A included), which we think puts Embracer in a unique position (among gaming companies 2021) to counteract tough comparables from 2020. In addition, we estimate that M&A headroom could add 15-16% to our current FY adj. EPS estimates. <br /><br />