Sometimes little-known games companies can present us with unique insights and opportunities, and I believe that’s the case with Enad Global 7, a $150M-sized games business headquartered in Stockholm, Sweden.

The company was founded as a co-development studio back in 2013 but morphed into a roll-up vehicle similar to Swedish counterparts Embracer, Stillfront, and Aonic. This strategy, like in other cases, largely backfired – it overpaid for deals, funding became more expensive, and growth wasn’t sustainable – which pushed the stock price down 85% from its highs.

However, new management (operating under CEO Ji Ham) took over in late 2021 and started rationalizing the business. Since then, management has conducted two divestitures (decreasing the number of business units to six), shut down high risk projects, wrote off risky intangible assets, and paid down the company’s debt.

Now that the foundation is healthier (more revenue, profits, and cash), leadership is reorienting EG7 toward a new, hopefully better and more focused growth phase.

So what exactly does EG7 do? Even though it’s small, the company runs 10 live service titles and operates in publishing, distribution, work-for-hire, and marketing. The six business units are:

• Daybreak: A console/PC live service game developer and publisher with eight live games including DC Universe Online, Everquest, and Magic the Gathering Online. CEO Ji Ham also ran this business, so this acquisition is what brought him into the fold.
• Big Blue Bubble: Technically a mobile/console/PC developer and publisher, but the viral success of My Singing Monsters on mobile is its primary engine.
• Fireshine: A business in transition that provides physical distribution for console games and increasingly digital publishing services for indie games.
• Petrol: A branding and marketing agency best known for its art work on Call of Duty for the past 17 years. It has also worked on hits like Elden Ring and Remnant II.
• Piranha: A console/PC premium and live service co-developer mostly known for its work with the MechWarrior franchise since 2012.
• Toadman: A console/PC co-development studio that previously tried making its own game and failed (so is clawing back to profitability by doing work-for-hire).

Even though the business has several moving parts, Daybreak and Big Blue Bubble collectively generated 68% of EG7’s revenue and 95% of adjusted EBITDA over the past year. EG7 as a whole is back to growth (20% revenue growth so far this year after 27% growth last year), and it generates company-wide EBITDA margins in the mid-to-high 20s, most of which converts into cash flow. It’s a good foundation and not a bad picture, especially since growth is now largely organic:

However, why EG7 is worth writing about today is less about the successful rationalization of the business and more about its plans from here, which get little attention.

It starts with the company’s renewed sense of identity. CEO Ji Ham has made it clear that EG7 targets the mid-market (essentially AA), in which budgets of $10-30M or so can lead to $50M+ sales outcomes. EG7 takes a more premium game approach, somewhat zagging as F2P is increasingly attempted around the industry, but the company is no less focused on long-term engagement.

In fact, part of what makes EG7’s portfolio different from other roll-up entities is its focus on long-lasting console/PC live service games that sell units upfront but keep users engaged through DLC and sequels, driving a stable fanbase and recurring revenue. Notably this extends across both first party and third party franchises:

Ji Ham has compared this operating framework to Lionsgate in the film industry, which is conservatively smart with financing as a tier-two leader, and occasionally unlocks majorly profitable hits like John Wick, Get Out, and The Hunger Games. EG7 plans to optimize its current portfolio for cash flow while selectively investing in new opportunities with promising economics. The growth will largely stem from new third and first party games, but turning around the services businesses (returning Toadman to profitability and improving margins at Petrol, for instance) may serve as a decent bridge in the interim.

Growth driven by third party publishing efforts is targeted at finding franchise opportunities with potential for sequels every two to three years. The latest example of this is a partnership with developer Cold Iron for what appears to be a new Aliens game. The Daybreak unit is publishing the game while the Toadman unit is assisting with co-development, and EG7’s investment of $23M (over time, driven by milestones) should achieve a high internal rate of return (realistically 50%+). The project is also lower risk since the franchise is somewhat proven, and Daybreak will first recoup 100% of its investment before sharing profits 50/50. It should be noted that this deal has wonky related-party transactions (the CEO owns Cold Iron, and EG7 couldn’t previously afford to acquire it when it had the option), but EG7 is targeting a couple more opportunities of this type.

Growth may also occur through revamped first party efforts, in which its leading IPs are My Singing Monsters, Everquest, H1Z1, and Planetside. My Singing Monsters is likely to decline as the game’s virality continues to normalize, but doing more with the other IPs is where the largest opportunity lies. Management has already penciled in plans for a new H1Z1 launch in 2026 and something new related to Everquest – Everquest 3? – in 2028. This is clearly a long-term plan and will take years to prove out (or not), but frankly it won’t take much new to move the needle in a profound way.

As you can see, the size of the pipeline between these efforts continues to expand, even as management focuses on limited, quality releases that fit its specific parameters around franchise and returns potential.

Of course, there are risks – some quite large. We don’t know what level My Singing Monsters will normalize to or what the potential is to take that franchise in new directions (as such, EG7’s 2024 results will likely decline). Continued work on the MechWarrior franchise depends on Microsoft’s approval, which owns the IP. Plus, limiting reinvestment into certain existing franchises could be a mistake, and the largest catalysts with H1Z1 and Everquest follow-ups are still in early concept and ideation phases, respectively. Clearly, not everything may work out as planned.

What’s interesting, though, is how much margin of safety appears to be baked into the company’s stock. This isn’t normally something we note in Naavik Digest, but this case is unusual and worth highlighting, so bear with me with the financial jargon for a moment.

In short, as of the time of writing, EG7 has SEK 1.6B market cap ($150M) and an enterprise value of SEK 1.13B given the net cash position of SEK 468.7M (a whopping 30% of the market cap, and cash is growing). Furthermore, with SEK 2.131B LTM net revenue and SEK 623M in LTM adjusted EBITDA (a 29% margin), EG7 trades for a measly 0.75x sales and 2.57x adjusted EBITDA.

Yes, business is lumpy and will likely decline next year, but management’s 2026 goals are SEK 3B in sales (16% CAGR) and SEK 1B in adjusted EBITDA (28% CAGR), which means EG7 currently trades at 0.5x times 2026 sales and 1.6x 2026 EBITDA (or a 1.1x if using EV). It also aims to use up to 50% of its net income (currently about SEK 100M) for shareholder returns, with a minimum of SEK 40M set aside for dividends (and the rest for opportunistic share repurchases). That’s currently a shareholder return yield of approximately 6.25%, and I think management should bump up the share repurchases right now given the cash pile and low multiples.

Typically, growing businesses trade at over 10x EBITDA (sometimes multiples of that), and definitely those with meaningful dividends and share repurchases. So what’s going on here? Is the market not paying attention, or are investors not giving EG7 the benefit of the doubt that it can execute? It’s likely a mix of both but appears to be more the former. After all, EG7 (and roll-up strategies in general) was once left for dead, and it is tucked away on a secondary exchange in Sweden, away from the eyes of most global investors and analysts (something that’s likely to change).

However, with a more stable foundation, more capable leadership, and a cohesive plan for future growth, some might say the risk/reward ratio is quite favorable right now. If you can handle long-term patience and stomach the risks that come from small companies still figuring things out, EG7 could be worth consideration. And at the very least, it’s a reminder to all of us that hidden gems exist and can be learned from — if simply we take the time to look around.

Final Note: If you’re an investor, banker, executive, or anyone who follows the ins-and-outs of the gaming market, you may be interested to know that Naavik offers market research, due diligence, and advisory services. If interested in learning more and exploring how we could work together, reach out to us here. We’d love to chat!

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