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[ February 13th 2002 ]

Shares in Eidos PLC were higher by midmorning, reversing an opening weakness, as a meeting between the computer gamesmaker's management and analysts at UBS Warburg led the broker to advise that the recent sell-off is unjustified, dealers said.

This follows recent talk that Eidos may be set to issue a trading statement, and after Goldman Sachs this morning cut its current year earnings expectations to reflect possible product delays. But management reiterated to UBS Warburg that it is happy with current market estimates, suggesting a 2002 pretax loss of 3.5 million.

UBS added that through its own studies it could find no new company-specific reasons for the recent weakness. It reiterated a 'buy' stance in a note to clients. This follows concerns that the release of major titles Deus Ex, Hitman 2 and Herdy Gerdy may slip into 2003, from the planned March launch. These specific titles each represent between 4-6% of UBS's 2002 sales estimates.

However, Eidos management advised the broker that they see no change to the release schedule from the interim stage. All three titles are advertised on Eidos' website with the release date of "early 2002", while trade magazine Computer Trade Weekly's release calendar places Herdy Gerdy for a release on Feb 22, the broker noted. Shares have also been hit after Salt Lake, Eidos' Winter Olympics franchise, failed to make much of an impact on the UK sales charts.

But UBS said both it and management knew that Salt Lake had not charted well in the UK at the end of January, having been launched three weeks earlier. The title, thought to be more popular in Germany, only equates to 3% of UBS's sales forecast.

The market should already be aware that this Christmas has been poor, with weak charting, delays and cancellations affecting the bottom line, the broker advised. But it believes Christmas 2002 has the potential for a recovery in earnings due to the launch of Tomb Raider for PS2 and a stronger underlying portfolio of titles.

Trading 19.5 times 2003 earnings, Eidos is on a 30% discount to leading US publishers, UBS noted. And while the broker believes a discount is justified, this is starting to offer some valuation upside given the strength of the Tomb Raider franchise. Moreover, it believes that sentiment on the shares should be good this year, driven by underlying industry growth and the likely success of the Tomb Raider launch.

At 11.41 am, shares in Eidos were up 3-1/2 pence at 144, having dipped as low as 140 in opening deals.

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