On Thursday, Macquarie adjusted its stance on shares of KADOKAWA (9468:JP) (OTC: KDKWF), moving the rating from Outperform to Neutral. The firm also revised its price target downward to ¥4,000 from the previous ¥4,600. This change reflects a new assessment of the company’s valuation in light of recent developments.
KADOKAWA’s stock price has been trading in the range of ¥4,300 to ¥4,500, which Macquarie believes incorporates a takeover premium. This follows the announcement that Sony (NYSE:SONY) will increase its ownership stake in KADOKAWA from 2.10% to 10.11% in January 2025. The expectation of this capital tie-up has influenced the share price, suggesting that the market has been pricing in the potential benefits of the partnership.
However, Macquarie now anticipates that KADOKAWA’s valuation will normalize and the takeover premium will dissipate. The firm’s new price target implies a total shareholder return (TSR) of -7.4%. This projection is based on a 15 times multiple of the company’s expected enterprise value to earnings before interest and taxes (EV/EBIT) for the fiscal year 2026, taking into account potential earnings growth from new ventures such as the ELDEN RING game.
The analyst from Macquarie stated, "We now see valuation will normalize without premium. We downgrade to Neutral, lowering TP by 13% to ¥4,000 (-7.4% TSR), based on 15x FY26E EV/EBIT, counting possible earnings growth by new ELDEN RING."
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