Discovery report #15

Research from the past week.

Embracer Group’s share price (83.4 SEK) trades near its 52-week low (75.2 SEK vs. 231.1 SEK high), presenting an attractive entry point due to clear value drivers. Coffee Stain, the group's flagship with +50% EBIT margins, high capital efficiency, and strong community-driven ROI, is expected to be spun off in 2025 at an estimated standalone value of around SEK 9bn. This suggests Fellowship Entertainment is valued at only approximately 2.7x EBIT, highlighting significant undervaluation despite Embracer’s large AAA pipeline. Combined with insider buying, cautious guidance, and upcoming disclosures and game launches, we see strong catalysts for a 50–80% re-rating in the coming years and are initiating a Starter position.

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Physitrack’s share overhang has been resolved as non-operative co-founder Nathan Skwortsow placed his remaining block off-market on Aug 22, removing the persistent selling pressure that had weighed on the stock. The transaction cleared at SEK 16.20, with shares rebounding to SEK 18.50 as new reputable investors entered the register. With fundamentals intact and the overhang lifted, we expect the price to more accurately reflect intrinsic value. Our conservative SOTP analysis indicates a fair value of SEK 26 per share, providing a wide margin of safety and attractive upside potential.

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This is the Discovery note section; It marks the first step in our research process — a curated snapshot of companies that have surfaced through different signals. It’s not a full pitch, but a way to highlight early ideas and assess whether they merit deeper research.

Biogaia (OM: BIOGB) - EV SEK 10.1bn; Price 106 SEK; EV/EBIT 23.7x

Watchlist add: BioGaia is a Swedish biotech company that develops and sells probiotic products. Gut health as a cornerstone of a healthy lifestyle continues to gain awareness, and BioGaia is riding, or one could say leading, that trend.

Financially, the company is in a very healthy state and is poised to achieve excellence. During the past twelve months, the company generated revenue of SEK 1.44 billion and an EBIT of SEK 423 million. The pediatrics segment accounts for approximately 75% of revenue and is showing slow growth in the mid-single digits, while the Adult segment is growing at +20%.

Over the past few years, the growth rate has slowed and margins have compressed somewhat. This has led to the share price having a relatively flat development over the past three years. To our understanding, the decreased margins are an effect of higher OPEX, due to a shift from distributor-based sales to direct sales. In a nutshell, it appears that the company is prioritizing long-term scalability over near-term profits, something we typically prefer, while the market may overreact to this decision. However, without a thorough amount of research on the company, we have limited insight into what is strategically correct.

What piqued our interest was the significant insider purchase by the newly appointed chairman, Mauricio Graber, and the changes in majority ownership. However, the current valuation still feels relatively high to us; we would much rather buy at the peak of pessimism, and we do not believe BioGaia has reached that point yet. We will closely monitor BioGaia and follow the news flow and stock price developments.

Talkpool (OM: TALK) - EV SEK 111m; Price 14 SEK; EV/EBIT 23.7x

More research is needed: Talkpool is a microcap company listed on both Nasdaq First North and the Frankfurt Stock Exchange. They provide advanced network services, which involve helping to build and plan telecom networks. They have 1500 employees and are active in most regions of the world. The company grew rapidly through mergers and acquisitions (M&A) and incurred debt; however, since 2022, it has been on a journey to slim down the organization and reduce its debt. By 2024, IoT was fully divested, and the company has since demonstrated steady revenue growth, despite currency headwinds. The company is also doing OPEX-related investments, which currently takes a slight toll on the margins.

Assuming modest growth of 12% a year (Q2’25 stood at 14% with negative currency) for the following years and an EBIT margin of 12% (Q2’25 at 8%) would create an EBIT of SEK 30m in 2028, which is an EV/EBIT of 3.8x. Additionally, a likely upcoming dividend is expected due to the strong cash flows.

A quick and dirty way to gauge growth expectations is EPV(Earnings-Power-Value). This examines current earnings power and divides it by a WACC to provide a valuation estimate based on no growth. LTM EBIT amounts to SEK 18.8 million. There are some obvious growth investments in the OPEX figures, so we will assume a sustainable earnings power before tax of approximately SEK 22 million. The tax rate Talkpol has been paying the last few years has been around 40%. We do not know why it is that high, but we will use it in our estimate. So, the post-tax earnings power amounts to SEK 13.2m. If we then use a WACC of 15%, given the small size of Talkpol and its associated risks, that would result in an EPV of SEK 88 million. Does this mean that the company should be valued at SEK 88 million? No, it's just a way to gauge how much of the current cash flows compared to growth in future cash flows explains the current valuation. The EV of Talkpool stands at SEK 111 million, which means that the current earnings power justifies close to 80% of the valuation. This indicates a low price implied future growth, which we like, as it appears likely that the company will grow by around 10% or more in the coming years, given its initiatives.

We believe that further research is needed on the sustainability of growth and the likelihood of margin mean reversion; however, the valuation appears attractive. Obviously, the low liquidity might be an issue, but the value seems to be there.

This list reflects our highest-conviction ideas, structured around two position sizes. Core positions (5–20% allocations) represent companies where we have strong conviction and see meaningful upside with manageable risk. Starter positions (2–5% allocations) are smaller entries in promising opportunities, allowing us to build exposure while continuing to evaluate catalysts, fundamentals, and valuation.

Negative convictions represent companies where our research suggests the market is overly optimistic and downside risks are underappreciated. These are most often tracked as hypothetical shorts rather than active positions, serving as a counterbalance to our conviction portfolio.