Embracer’s 30% Drop Reveals an Attractive Implied Coffee Stain Valuation

Embracer’s share price fell 29.8% yesterday to SEK 60 as the stock began trading without the rights to Coffee Stain Group. The decline reflects the arithmetic removal of a subsidiary, not a deterioration in Embracer’s operations.

Based on the price adjustment, the market is implicitly valuing Coffee Stain at SEK 25 per Embracer share, or an equity value of SEK 5.7bn. Adjusting for ~SEK 250m in cash, the implied enterprise value is SEK 5.47bn.

Based on financials:

Based on normalized economics for Coffee Stain, the market pricing appears conservative.

Paradox Interactive (PDX) trades at:

• 22.2x LTM EV/EBIT

• 17.2x NTM EV/EBIT

Overall, we believe Coffee Stain has likely stronger growth prospects than PDX, and we find that its community-focused game development model warrants a premium due to favorable ROI characteristics.

Even adjusting for Coffee Stain’s cyclicality, the spin-off looks underpriced relative to peers and its own track record.

View: We see Coffee Stain’s implied valuation as attractive, supported by multi-year cash generation, durable franchises, and historically high returns on capital. The discount vs. Paradox suggests room for re-rating once standalone trading stabilizes.

A cautionary note is that Embracer was trading on the primary market with both major institutional investors and index funds. These owners might not be permitted to hold shares in Coffee Stain since it will trade on Nasdaq First North (an MTF). This situation could lead to initial selling pressure as they sell shares, but this is only speculation.

In the long term, what matters is the fundamentals, and that is where we have a strong belief in Coffee Stain.

Disclaimer

This analysis represents the independent views of Lind Research and is based on publicly available information believed to be reliable, but no warranty is given as to its accuracy or completeness. Nothing herein is investment advice or a recommendation. We publish openly, and companies do not influence our conclusions. Lind Research may hold positions in securities discussed.

Analyst owns shares? Yes.

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