TAPS EIDOS COVERAGE
Copyright 2001 AFX News
[ October 8th 2001 ]
in Eidos PLC were leading the mid-cap risers at
midday, bucking the weak market trend after Merrill
Lynch restarted coverage with an upbeat note on
the computer games maker and its Europe-wide sector
with a medium-term 'buy' stance and a long-term
'neutral' in a morning note to clients. It said
Eidos offers a "pure, operationally geared play"
on the games industry with a focused approach,
a solid balance sheet, and clean accounting policies.
commented that Eidos had in the past an over-reliance
on Tomb Raider, its long-running action adventure
series fronted by Lara Croft. But the broker forecasts
this reliance to continue to decline in spite
of the movie this year, with Tomb Raider seen
to provide less than 10% of revenues in 2002.
is targeting 20% growth excluding Tomb Raider
products, with a Tomb Raider related title every
other year which will boost this target for underlying
business in release years. Some 21 titles are
planned for launch in 2002, rising to 24 titles
in 2003 - a Tomb Raider year.
also highlighted Eidos's strategy of developing
high volume genres and in-house content and properties,
while out-sourcing peripheral areas such as distribution
and mobile gaming. However, the broker noted that
Eidos must 'bulk up' over the longer term to gain
a greater number of steady, lower volume entertainment
would reduce risk and also begin the move into
new long term growth areas such as mobile and
online gaming, it said. Merrill's 'buy' rating
on Eidos therefore reflected a low relative rating
and improving management. Its long-term 'neutral'
stance reflected that benefits are seen offset
by longer term issues over lack of diversification
and concerns over the industry.
risk is high on a title by title basis and cyclical
industry weaknesses continue to be a feature,
it said. The broker believes investors should
be prepared to bail out of Eidos and other software
stocks "near the top" of the market, which it
projects to occur in 1-2 years time.
comments came as Merrill restarted coverage of
European companies within the $18 billion global
leisure software industry; it estimates that around
$14 billion of this consumer spending moves towards
the mass market companies, even despite the recent
slowdown ahead of new console launches.
are thought to have delayed decisions ahead of
the launch of new hardware from the likes of Sony,
Nintendo and Microsoft - the latter two do not
launch systems in Europe until after Christmas.
But Merrill now believes we are near the bottom
of the current console downcycle. It sees market
growth in Europe of 5-10% this year and 20% a
year over the following 2 years.
in 2001 is still risky due to lower consumer confidence
following Sept 11 and due to a low installed base
of new consoles, the broker said. But it believes
any disappointment might be looked through by
investors keen to share in upside as console volumes
console launches should stimulate software demand
in 2001-02, while new software releases should
also accelerate to support these launches, boosting
growth further, it said. Merrill also restarted
coverage of Ubi Soft Entertainment with a medium-term
'neutral' and long-term 'accumulate' stance, due
to the group appearing relatively highly valued.
meanwhile, was initiated with a near-term 'accumulate'
and a long-term 'neutral'. At 12.12 pm, shares
in Eidos PLC were trading up 12-1/2 pence to 201.
This extends gains seen last week after rival
broker Goldman Sachs initiated coverage on the
UK group with a 'market outperformer' stance.