Sega Sammy Earnings: Results and Guidance Missed Expectations, but Shares Are Undervalued

Sega Sammy’s shares lost 11% on Feb. 9, 2024, as the company’s December-quarter 2023 result and a downward revision of full-year guidance were disappointing. Despite the near-term challenges, we maintain midcycle forecasts and our fair value estimate of JPY 2,630 per share, as we continue to expect the company to see opportunities from the globalization of its well-established intellectual property, with expanding platforms and markets. We also expect positive synergies with its recently acquired Rovio in growing its mobile game business and expanding its global presence. These will improve Sega Sammy’s growth outlook in the mid to long term. We think the shares are undervalued currently, trading at 4.2 times our forecast 2024 EV/EBITA, below the average of 6.0-6.5 times, its historical range.