April is known for its unpredictable weather, especially in our region. This was also evident during the earnings season, which gained significant momentum at the end of the month. So far, a little over a third of the funds' holdings have reported, and the pattern from previous seasons continues with many more positive than negative reports. However, the reception has largely been influenced by the sentiment of the day. In a few significant exceptions, especially among large tech companies in the U.S., the companies' reports have set the market tone rather than the other way around.

The first week of the new quarter traditionally marks the profit warning season in the software sector. These companies generally have near real-time insight into their business and can flag potential misses as soon as the quarter ends. The first quarter is also usually the least important of the year. We've seen only one pre-announced negative development for Q1, which was Upsales, which experienced some churn during the quarter, resulting in declining recurring revenue (ARR). Staying within the software sector, we want to highlight Admicom, which has demonstrated growth despite the very weak construction market in Finland. It's impressive that they have managed to grow in such conditions. Business-critical software is rarely abandoned unless absolutely necessary. The fact that software companies that have yet to report remain healthy is a sign of the sector's strength.

On the topic of profit warnings, Chemometec delivered one in the middle of the period, adding to the negative sentiment around the stock. The turnover for the full year 2023/24 (the fiscal year ends at the end of June) will land in the lower half (DKK 400–415 million) of the range previously guided (DKK 400–435 million). As a result of this and the costs incurred from the sudden CEO change in March, the result will be lower than the previously announced range. We see this as another black mark on the company's communication bag—these costs could have been clearly announced with the CEO change, adjusting the entire guided range.

Noteworthy reports this season include Nordic Semiconductor. Outside of semiconductors directly targeting AI applications, the market has been challenging over the past 12–18 months. There are often several layers between semiconductor manufacturers and consumers of end products containing the semiconductors. Shifts in end demand are gradually magnified backward in the chain through inventory adjustments. Participants at different stages in the chain are also not always transparent with each other. Predicting the future and planning operations for a semiconductor developer is like diving in the Baltic Sea—visibility frequently leaves much to be desired.

For a nervous stock market, this is often difficult to handle, which is another reason why it has historically been challenging to find the right time to buy and sell semiconductor stocks. It was not the quarterly result itself that was important in Nordic Semi's report; turnover landed in the middle of the guided range. It was the outlook for the second quarter, where the company expects turnover to land approximately 30% higher than the market average forecast. These types of parallel shifts are not uncommon, and we refrain from assessing the market's rationality. Perhaps this is just another example of how depressed sentiment has been and how little is required for a company to climb a wall of worry.

Fractal Gaming, whose founder Hannes Wallin was seen on stage at our annual investor meeting in January, also delivered a good report. The definition of "good" here is different. In Fractal's case, they managed to match last year's exceptionally strong comparative figures in the first quarter. Q2 in 2023 will also be challenging to match, especially given the company's historical seasonal pattern. The company has warned about this. Those who follow the company should already be aware of the situation. The near future's outlook is not so much on the Q2 results but rather on the Computex trade fair in June, where Fractal will launch new products, including two completely new categories. We will follow the launches with excitement and look forward to hearing Fractal comment on the initial development during their capital markets day in September.

Among the largest companies, Alphabet, Google's parent company, stands out. Google has long been a leader in AI, especially through its investment in DeepMind, but OpenAI stole the spotlight with the launch of ChatGPT. The irony is complete, as Google is behind much of the underlying technology, particularly the transformers stacked on top of each other that form the basis for Large Language Models (LLMs). Google's primary revenue source is advertising revenue generated when we search for information or answers to questions on Google. There has been concern that ChatGPT and similar services will eat into Google's core business. This concern hasn't been alleviated by the early versions of the company's chatbots drawing criticism. In the first quarter report, Google answered these concerns with good search growth, a multi-billion-dollar buyback program, and the intention to establish a dividend for the first time. The stock rose by double digits.

Not everything in April was about reports. The period's biggest news may have been presented by Embracer. In March, the company formally completed its restructuring after announcing the sale of Saber Interactive and Gearbox. Surprisingly shortly thereafter, they announced their intention to split the company into three parts: Asmodee (board games), Coffee Stain and friends (a working name for a group consisting of indie games and mobile games), and Middle Earth and friends (a working name for rights related to Lord of the Rings, physical distribution alongside the portfolio of AAA games). Asmodee will be the first to go, with a spin-off planned within 12 months.

These thoughts go back to the special review the company initiated in November 2022. When the large partnership that was expected to contribute around SEK 20 billion in game development financing fell through in March 2023, the focus shifted to more immediate measures. In June 2023, the restructuring was launched, which led to pausing the review of the company's long-term structure. Now that the plans have been dusted off, they are more ambitious than we expected.

Asmodee, with its focus on board games, has been seen by many as an odd bird since Embracer acquired the company. If one has invested in the company for exposure to purely digital entertainment, this was an unwelcome element. Others reacted to the price and the debt Embracer took on to complete the acquisition. The fundamentally strong cash flows the business generates were questioned during a period of inventory build-up related to COVID. All of this makes Asmodee a seemingly natural candidate to be spun off to shareholders. Each investor can decide whether they want to keep both stocks or—if they don't want to see the matter as binary—freely choose how they want to balance Asmodee against the rest. In addition, Asmodee may have experienced some dissynergies as part of a larger, investment-heavy Embracer. Without control over its cash flow, Asmodee has been unable to pursue its acquisition agenda. Finally, even though the whole idea behind Embracer's corporate structure has been to give entrepreneurs a place to operate with freedom under responsibility, it may be easier for Asmodee's management to create clear incentives for employees related to the development of their own stock.

Embracer didn't stop there, but presented another division of the group. The remaining businesses will be divided into two roughly equal parts. Coffee Stain and friends will consist of the company's smaller game studios, with Coffee Stain as the natural hub. All mobile games under DECA, Crazy Labs, and Easybrain will also be included. The business connection between these operations is not so much operational as it is characteristic: a strong focus on live ops, nurturing existing games over time, and a high share of recurring revenue and healthy cash flow.

When this second spinoff (conceptually) has taken place, an Embracer with the working name Middle Earth and friends remains. Besides all the rights related to Lord of the Rings, this would include all studios working on AAA games. These are also distributed more in physical retail, so this business fits within Embracer. The exact division of businesses isn't set in stone at this stage, but broadly speaking, this would be the more investment-heavy, quarterly volatile business with significant upside potential in individual games. Especially if the company can productively use the rights to Tolkien's fantastic world.

Financially, they are sketching out that most of the debt will end up on Asmodee, giving the company a debt ratio of about 4x EBITDA. This looks high, but the repayment rate can be quick, and the company has operated privately for a long time with even higher leverage. The rest of the group is then left with a net debt of about 0.6x EBIT. A company like Middle Earth and friends may work without debt, maybe even in a net cash position. This would give a debt ratio over 1x for Coffee Stain and friends. This assumes the sales of Gearbox and Saber are fully completed and paid for. Investors now have a fairly clear checklist for the next 12–18 months: 1) gradual operational improvements, 2) notably better cash flows, 3) payments from buyers of the sold companies, 4) more information about future structure and details about the constituent companies, 5) spinoff of Asmodee, 6) final details about Coffee Stain and friends and Middle Earth and friends, and 7) spinoff of Coffee Stain and friends. The first checkpoint is Embracer's Q4 report on May 23.

If we continue with events unrelated to the reporting period, we note that the Norwegian-listed software company Carasent is now under acquisition by software colleague EG A/S. Interestingly, the board recommends that shareholders not accept the offer. Larger deals have also been discussed in the market during the period. Google's parent company Alphabet has been named as a potential buyer of Hubspot, and Salesforce has shown interest in the privately held Informatica. Both of these potential deals are rumors, but there are arguments for such deals to happen: the world's largest tech companies are practically overflowing with money. Similarly, there are inherent arguments that smaller, innovative Nordic companies could be targeted for acquisitions in the future: valuations have lagged not only their profit growth but also larger international competitors.

TIN New Technology A

In the past month, the fund’s unit value dropped by 1.6 percent. During the same period, the broader benchmark index for Nordic small-cap companies, VINXSCN, increased by 1.2 percent. Since the fund’s inception on February 4, 2019, it has risen by 54.5 percent, while the index has grown by 79.1 percent. At the end of the month, the fund’s three largest holdings were Novo Nordisk, Evolution, and Surgical Science. For a full list of the top ten holdings, visit tinfonder.se/en-us/funds/tin-new-technology.

The holdings that contributed most to the returns during the month were Embracer, Nordic Semiconductor, and Novo Nordisk. Among the holdings that negatively impacted the fund were Nemetschek, Paradox Interactive, and Chemometec. The fund’s largest segment is Software, which accounts for 39 percent of assets under management, followed by Healthcare at 34 percent, and Digital Brands at 14 percent.

TIN World Tech

In the past month, the fund’s unit value decreased by 3.3 percent. During the same period, the broader benchmark index MSCI World fell by 0.1 percent. Since the fund’s inception on June 12, 2020, it has increased by 36.3 percent, while the index has grown by 93.3 percent. At the end of the month, the fund’s three largest holdings were Microsoft, Novo Nordisk, and Salesforce. For a full list of the top ten holdings, visit tinfonder.se/en-us/funds/tin-world-tech.

The holdings that contributed most to the returns during the month were Nordic Semiconductor, Alphabet, and Embracer. Among the holdings that negatively impacted the fund were Straumann, Autodesk, and Adyen. The fund’s largest segment is Software, accounting for 55 percent of assets under management, followed by Healthcare at 20 percent, and Digital Brands at 11 percent.