Asserts a Sale to a Well-Capitalized Acquirer Can Unlock More Than 100% Upside for Shareholders, Based on Recent Gaming Acquisitions
DALLAS–(BUSINESS WIRE)–Alta Fox Opportunities Fund, LP, one of the largest shareholders of Enad Global 7 AB (STO: EG7) (“EG7” or the “Company”), today released the below letter sent to the Company’s Board of Directors (the “Board”).
May 22, 2023
Members of the Board of Directors,
Alta Fox Opportunities Fund, LP (together with its affiliates, “Alta Fox” or “we”) is one of the largest shareholders of Enad Global 7 AB. We have spent a considerable amount of time analyzing EG7’s gaming IP, operations and overall strategy and have had an opportunity to engage with EG7 leadership in recent months.
Despite being a leading gaming company with a diverse portfolio of high-quality assets, EG7 is among the cheapest publicly traded gaming stocks in the world given it is currently trading at an estimated ~4x FY23 EBITDA and a ~15% FY23 free cash flow yield. We believe the overhang from prior management’s missteps still weighs heavily on the Company’s valuation today, despite Chairman Jason Epstein and CEO Ji Ham’s best efforts to create value for shareholders. That is why we encourage the Board to commence an immediate exploration of strategic alternatives – including a sale of the entire Company – among other initiatives, which we believe could unlock more than 100% in near-term upside for EG7 shareholders.
Recent comparable gaming transactions and peer valuations demonstrate just how deeply EG7’s current trading price is disconnected from its intrinsic value. Unfortunately, the market does not appreciate the significant upgrade in the quality of management and capital allocation discipline brought by Chairman and significant shareholder, Jason Epstein, and CEO Ji Ham. Both gaming industry executives are proven capital allocators who successfully built Daybreak Games through strategic M&A while balancing growth and profitability. While at the helm of EG7, management made the smart decision to divest Innova and within ~18 months have taken EG7 from significant net debt to a significant net cash position. Under their leadership, Big Blue Bubble’s operating performance has also improved tremendously resulting in impressive growth at the group level in FY22 through FY23. Finally, and importantly, Messrs. Epstein and Ham have shown strong shareholder alignment having been significant buyers of EG7 stock, despite already owning a material stake in the business stemming from their sale of Daybreak Games to EG7.
While Alta Fox has confidence that Messrs. Epstein and Ham have the potential to create economic value, we have less confidence that the market will properly reward the Company with an appropriate valuation unless significant action is taken to address EG7’s valuation discount. EG7 is an off-the-radar microcap with minimal sell-side coverage and a relatively unknown story to non-Swedish investors. Moreover, it is down ~80% from all-time highs and previous management missteps have permanently alienated many local investors.
As a significant shareholder, Alta Fox has spent a great deal of time considering the best path forward for EG7 and all its stakeholders. It is our view that the Board must act expeditiously to address the Company’s significant trading discount so that long-suffering EG7 shareholders can prosper. That is why we encourage the Board to initiate a review of strategic alternatives to close the gap between the Company’s market value and intrinsic value, among other steps in the near-term:
- Relist the Stock on a United States Exchange. Relisting in the United States would allow the Company to aggressively buy back shares at an attractive free cash flow yield, which is not allowed with the current Swedish listing. Even an up-listing in Sweden to allow buybacks would be better than the status quo.
- Initiate a Recurring Dividend. This would immediately turn the Company’s valuation multiple into a dividend yield. We estimate EG7 could easily pay a 10%+ dividend on the current share price while still properly reinvesting and maintaining a net cash balance sheet.
- Run a Formal Strategic Review Process, Including a Sale of the Entire Company. We estimate multiple acquirers could pay a material premium to current prices and still have EG7 be a highly accretive transaction. Several peers were recently acquired for double-digit EBITDA multiples (SCPL and ROVIO), which we believe further highlights EG7’s valuation disconnect at ~4x EBITDA today.
In sum, it is obvious to us that EG7 is a high-quality business that remains dramatically undervalued due to no fault of current leadership. The market’s recent muted reaction to strong Q1 results only reinforces our view. If properly executed, we are confident that our recommended actions can close the significant discount that EG7 shares trade at today. As a top shareholder that firmly believes in the long-term value of EG7’s gaming assets, we are laser-focused on helping the Board create value for the benefit of all stakeholders – and sincerely hope that the Board is equally committed to taking all necessary steps to unlocking the true potential of EG7.
Alta Fox Capital Management, LLC
About Alta Fox
Founded in 2018 by Connor Haley, Alta Fox is a Texas-based alternative asset management firm that employs a long-term focused investment strategy to pursue exceptional risk-adjusted returns for a diverse group of institutions and qualified individual clients. Alta Fox focuses on identifying often overlooked and under-the-radar opportunities across asset classes, market capitalization ranges and sectors. Learn more by visiting www.AltaFoxCapital.com.
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