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On Friday, CFRA analyst Adrian Ng revised the rating on Ubisoft Entertainment SA (LON:0NVL) (UBI:FP) (OTC: UBSFY (OTC:UBSFY)), lifting it from Sell to Hold and increasing the price target to EUR14.00, up from the previous EUR10.00. The adjustment comes as CFRA adopts a more neutral stance on the video game company, which currently trades at $2.71 with a market capitalization of $1.8 billion. According to InvestingPro analysis, the stock typically moves counter to market trends with a beta of -0.19.
Ng’s commentary highlighted Ubisoft (EPA:UBIP)’s strategic move to form a subsidiary dedicated to its flagship franchises, a decision that has demonstrated the company’s capability to unlock the value of its intellectual property. This move is further validated by the valuation implied by Tencent’s investment in the subsidiary, which is over four times that of Ubisoft’s entire group, according to Ng. This suggests that the market had previously undervalued Ubisoft’s assets due to the Group’s past missteps. InvestingPro data reveals impressive gross profit margins of 90.35% and strong liquidity with a current ratio of 2.32, suggesting robust operational efficiency despite recent challenges.
The creation of the subsidiary is also seen as a potential benefit for Ubisoft’s game development process. Ng believes that having a focused approach to developing its main franchises could lead to better outcomes. Despite this positive outlook on the company’s strategic direction, CFRA maintains a neutral position due to a lack of immediate signs of improvement in the company’s net bookings.
One specific example provided by Ng is the recent release of Assassin’s Creed Shadows, which does not appear to be outperforming earlier estimates. Therefore, while recognizing the potential long-term benefits of Ubisoft’s recent organizational changes, CFRA does not anticipate strong short-term improvements in the company’s financial performance. The new price target of EUR14 reflects these tempered expectations.
In other recent news, Ubisoft Entertainment SA has announced significant changes, including the formation of a new subsidiary focused on its top franchises like Assassin’s Creed, Far Cry, and Tom Clancy’s Rainbow Six. This move is part of a broader strategy to enhance operational efficiency and capitalize on its successful intellectual properties. Tencent Holdings Ltd (HK:0700) (F:NNND). has agreed to invest approximately €1.16 billion for a minority stake in this new entity, valuing it at about €4 billion. This investment aims to support Ubisoft’s ambitions for its flagship franchises and expand its gaming ecosystems.
Meanwhile, TD Cowen analysts have revised their price target for Ubisoft shares from EUR15.00 to EUR14.00, maintaining a Hold rating. This adjustment comes after Ubisoft lowered its bookings guidance for the fiscal third quarter and delayed the release of "Assassin’s Creed: Shadows" to March 20. Analysts express skepticism about significant changes in Ubisoft’s situation, citing ongoing operational challenges and management issues. They have adjusted their financial estimates, lowering the fiscal year 2025 bookings forecast and increasing the projected EBIT loss. Benchmark analysts also maintained a Hold rating on Ubisoft shares, reflecting the company’s strategic shifts and ongoing transformation efforts.
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