CD Projekt’s share price has collapsed, but the end of the declines may be near [Opinia]

CD Projekt's share price has collapsed, but the end of the declines may be near [Opinia]
photo: Kacper Pempel / / Reuters

Strong price drops of CD Projekt in recent weeks are justified, and their reasons are mainly the distant premiere of the next “The Witcher” and the lack of improvement in sales of “Cyberpunk 2077” – experts estimate. The manager, Paweł Sugalski, believes the magnitude of the pessimism could signal the end of the cuts, although it is difficult to expect a stronger recovery.

“The magnitude of the decline in CD Projekt’s share price from the official announcement of the new ‘The Witcher’ and the unexpected transition to Unreal technology in March 2022 is very impressive. the Rockbridge Gier i Innowacji fund, currently the creator of its own Smart Money FIZ.

Sugalski believes that the reasons for the sharp price drop of the CD Projekt compared to similar companies can be found in the distant release date of the next “The Witcher”.

“Discounting the expected gains of a fairly distant future with ever higher interest rates drives analysts’ valuations to ever lower levels,” he ruled.

According to Sugalski, the magnitude of the pessimism and sell-off of CD Projekt shares, as well as the unanimity of analysts, may indicate that the company’s stock may stabilize at new levels.

“However, in such an environment it is difficult to expect a quick rebound” – the manager judged.

“Local sentiment towards the industry remains appalling and in recent weeks valuations of smaller companies, especially in the NewConnect market, have also been brutally verified” – he concluded.

Late last week, CD Projekt’s stock price fell sharply after Bank of America analysts lowered its price target to PLN 55 with a “below market” recommendation. In the opinion of the report’s authors, the market is over-optimistic in judging the successes of the announced CD Projekt game add-ons in 2023, and new games (another “The Witcher”) will only be released at best. be released in 2026.

The last three reports (BofA, PKO BP and DM BOŚ) value the game producer’s shares at an average of 75 PLN, which is below the current price (about 90 PLN). However, the average target price of all this year’s reports available to PAP Biznes is PLN 117.6 million.

The fall in the game maker’s valuation in recent days is another stage of the discounts that started in April. As a result, CD Projekt’s capitalization fell below the level of PLN 9 billion, which has not been seen since 2017. Since the start of the year, the price is down 52 percent (the second-strongest drop in WIG20, after CCC), while the broad WIG index lost 23 percent. CD Projekt’s stock valuation is much worse than global gaming industry benchmarks – VanEck’s Video Gaming and eSports ETFs and Global X Video Games & Esport fell 23 percent and 19 percent respectively this year.

The weakness of CD Projekt’s price is spreading to the entire gaming sector at the WSE. WIG_Gry, which began publication in March, is the weakest sector index on the WSE this year, thanks in large part to the market leader, whose share of the benchmark portfolio stands at 63%. As of the beginning of the year, the index lost 49 percent. (despite the start in March, the base date from which the odds are calculated is the last day of December 2016).

Michał Wojciechowski of Ipopema Securities believes the recent decline in CD Projekt’s share price is justified by information from the company. As the analyst assessed in response to PAP Biznes’ questions, the next game from the studio, the new part of the series “The Witcher”, is only in the early stages of production and it will be years before its premiere . This is indicated by the analyst’s recently announced game engine change from CD Projekt’s proprietary solution to Epic Games’ Unreal Engine.

The second reason for CD Projekt’s weakness is lower-than-expected sales of “Cyberpunk 2077” for the new Sony and Microsoft consoles. Some observers expected it to be another opening for the game after its failed premiere on consoles in December 2020.

“If investors hoped that Cyberpunk would be what it should have been from the beginning in this new version, a lot of people would be disappointed,” says Michał Wojciechowski.

Also, Tomasz Rodak, an analyst of DM BOŚ, wrote in the May report that the premiere of the version of “CP 2077” for new generation consoles did not significantly affect the interest of players, and that sales of the game in Q1 were lower. . – maybe even by half – than expectations analyses. The analyst also ruled that the continued low prices of the boxed versions of “Cyberpunk 2077” mean that premiere shares of the game are still on the market, which in turn may indicate the lack of significant 2022 revenue from the game. sales of boxed versions.

The game’s sales, despite numerous updates, haven’t improved significantly since its premiere and, as the company announced in April, the first major paid expansion for “Cyberpunk” is set to be released in 2023. The market had previously expected the release of the game. expansion would take place in 2022. Investors are waiting for the expansion, because despite the mixed reception of the game, the number of buyers – so potentially interested in the expansion – is high: in mid-April, CD Projekt announced that more than 18 million copies have been sold.

Also, CD Projekt’s quotes can’t be helped by the fact that the premiere of another product from the company – the version of “The Witcher 3” for new generation consoles – has already been postponed several times and the currently planned date is the 4th quarter. is from this year. However, sales expectations are not high: the new version of “The Witcher 3” should be available for free to players who previously bought the game for older consoles or PCs, and as the company announced in April, there are already more than 40 million such. people.

According to Paweł Sugalski, an additional factor that weakens CD Projekt’s investment attractiveness could also be an unusual statute that protects against a hostile takeover.

“This leads to a situation where companies that do not have comparable facilities are favored by global investors betting on new acquisition candidates,” Biznes told PAP.

“The only factor that could change this picture in the near term is significant stock purchases by insiders or major shareholders,” he added.

cuck / ana /

Source:PAP Biznes

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