Sega Sammy Earnings: European Restructure Ends; New Medium-Term Plan Highlights Growth Opportunity

We raise our fair value estimate of Sega Sammy to JPY 2,680 per share from JPY 2,630, following the firm’s release of its new Medium-Term Plan through fiscal 2024-26, which reflects an improved profit growth outlook in the entertainment content business segment, more than offsetting the short-term reactionary decline in pachislot and pachinko sales. We think this is encouraging, helping to ease investor concerns over the firm’s growth potential in the video game segment. We anticipate higher mid- to long-term growth in operating profit and lift our five-year CAGR forecast of J-GAAP-based operating profit to 4.7% through fiscal 2024-28, up from 2.8% in our earlier assumptions. We continue to expect the firm to see opportunities from the globalization of its well-established IPs, with expanding platforms and markets, as well as positive synergies with its recently acquired Rovio in growing its mobile game business and expanding its global presence. We think the shares are currently undervalued relative to our long-term outlook.