Large Cap Stockholm – EMBRAC B
After the Embracer report on May 22, the share price fell by 17% to SEK 105 and that means a market capitalization of SEK 23 billion. Many were worried about slightly weaker guidance for the coming quarter, but the CEO was clear; 76 new and updated games will be released in the next 12 months. We already have information about 7-8 of them. 9 AAA (big budget games) will be released in the next 12 months. However, the CEO wrote that there may be delays in some. Still, it is far more than 1 game per year that Embracer has made in the last 5 years.
New target prices came in between SEK 110 up to SEK 170 (optimistic valuation). I will start accumulating, the reason is that the company has a little over SEK 5 billion in cash, and no debt. There was a big concern last year when the debt was SEK 15 billion. Now there is a pretty good cash flow of SEK 3 billion in good times and approx. 1 billion in bad times, per year.
Embracer bought Tomb Raider for SEK 3 billion and Lord of the Rings in 2022, which includes everything from games to movies, theme parks and merch for SEK 4 billion (once upon a time, the brand was worth SEK 20 billion). Dark Horse Media, which produces comic books, cost over SEK 1 billion. A larger game is also worth close to SEK 1 billion and smaller games between SEK 250-500 million. So it takes 4 games per billion.
Now we have some info about the company, then we can start counting. Let’s not forget that Embracer probably bought a little too expensive 3-4 years ago but the price tag should have corrected itself in 3 years. So it’s probably the same price, for some things less for others probably higher. What is Embracer worth?
Of the 9 AAA titles, I guess they are all existing titles like Metro, Saints Row, Dead Island, Kingdom Come, Goat Simulator, Wreckfest, Reanimal, Biomutant and probably Darksiders. A value of 9 billion. There are over 5 billion in the box office. Tomb Raider franchise 3 billion, LOTR 4 billion Dark Horse comics at least 1 billion There are also 232 more titles in various shapes and sizes. At least 10 billion I think.
Would value Embracer as a company at 32 billion (32,000 million). There are 225 million shares. Simple math: 32,000 / 225 gives a reasonable value for Embracer (if you want to buy the entire company) of 142.2 SEK. That’s why banks give target prices of 20% lower (for safety reasons) and 20% higher (positive view). So 110-170 SEK. That’s why I am willing to enter now, and buy more if it goes below SEK 110. The 232 titles are probably worth more than 10 billion, but it’s incredibly difficult to set a value, it’s all about demand.
Even if Embracer makes a low profit next quarter, it doesn’t matter. Bigger profits are coming in the future and with a large cash flow, Embracer will start buying back shares or paying dividends, or maybe both. In September we will get an answer about how the board wants to do with buybacks/dividends.
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