We have been investors in Embracer Group since the IPO and do think the company has come a long way of building a portfolio of attractive IPs. We firmly believe that the gaming sector continues to hold promising potential for generating shareholder returns over time. This is largely due to the ongoing digital transformation of the industry and the increasing demand for gaming IP from tech platforms. The increasing appetite for gaming IP shows that the value of such can increase over time if well managed.
However, we are not happy with the share price performance up until and after the Q4 FY 22/23 report. Unfortunately, we think that this is to a large part self-inflicted. Following the listing change to Nasdaq Stockholm we do not think the communication has been on par with what one could reasonably demand from a publicly listed company on the main market.
The current market cap is 25 SEKbn, which is on par with the acquisition value of Asmodee. Also, it is well below the roughly 75 SEKbn+ invested by Embracer in acquisitions. In this light, we think there is need for a swift change to articulate the future strategy, the company’s priorities and how Embracer plans to communicate going forward.
From our previous experiences in the gaming sector we have identified some factors that we think are important to be successful over time:
In our assessment, all the above is achievable for Embracer. Given that set-back of not signing a transformative platform deal in PC/Console, the strategy needs to be further clarified and communicated to investors:
In addition to the above we do think that the way the company was communicated financial forecast has had a clear negative impact on investor trust. In that context we think it is better to provide no financial forecast at all. If the company wishes to continue with financial forecasting, we do think the methodology should be adjusted:
We do think it should be a priority for Embracer Group to clarify and communicate both the strategy and the priorities for FY 23/24 sooner rather than later. In our view the company should consider both smaller and larger changes, including divestment options, to be able to secure the long-term plan: being a good long-term home for gaming IP, entrepreneurs, and transmedia potential. Even if that would require a more focused and narrower corporate structure. Finally, we think that is important to for the company to show decisive action in the above, if it wishes to re-establish investor trust as a public and independent company.