Sweden Gaming Stocks Crowned Lockdown Winners, With More to Come

A cluster of Swedish gaming developers have taken the stock market by storm this year, and the rally may have further to run.

Stillfront Group AB and Embracer Group AB have advanced more than 170% in 2020, making them the two best stocks of the global Solactive Video Games Index, which is up 39% this year. Another standout, G5 Entertainment AB, has more than quadrupled in value, the second-best gain among the OMX Stockholm Index’s 365 members.

Helped by a wave of lockdowns that spurred a global gaming industry boom, these developers may now enjoy some lasting benefits from a larger market, according to Bloomberg Intelligence analyst Matthew Kanterman.

Fueling that growth are so-called Covid players that are likely to stay on-board, Jefferies analysts said earlier this month. That’s a view shared by Stillfront, which expects users picked up after the virus outbreak to “play our games over a long period of time.”

Carl Armfelt, a portfolio manager at TIN Fonder in Stockholm, points to how adept the games companies have been at releasing strong titles and developing their operations this year.

“Both Embracer and Stillfront still look cheap,” said Armfelt, who sees more gains coming from the release of new games consoles by Sony Corp. and Microsoft Corp.

“Fundamentals for PC and console with the transition to next generation for PS5 and Xbox Series X make the sector look attractive,“ Armfelt said.

Sweden Gaming Stocks Crowned Lockdown Winners, With More to Come

Hunted Turn Hunter

This year’s growth is also part of a longer-term trend for Swedish game developers, which have seen their sales more than double to 24.3 billion kronor ($2.9 billion) between 2014 and 2019, according to the trade group the Swedish Games Industry.

“There’s a notable indie scene in Sweden, with quite a lot of studios and relatively good access to venture capital,” said Tomas Otterbeck, an analyst at Redeye AB in Stockholm.

The ability to access capital has enabled Swedish developers to go on a buying spree. Stillfront recently announced acquisitions of Sandbox and Super Free Games totaling about 2.6 billion kronor, and last month Embracer announced no fewer than 13 acquisition agreements. Nor does the pace of acquisitions look to be slowing: Embracer said on on Dec. 17 it had signed a new M&A credit line of 3 billion kronor.

Per Stromback, spokesman for the Swedish Games Industry, says that publicly traded games companies in Stockholm are using “their shares to acquire other businesses, in addition to the underlying organic growth of the industry.“

That’s in contrast to past years, when the country’s biggest successes were snapped up by U.S. giants. Microsoft Corp., which bought Stockholm-based Mojang AB in 2014, said in May that Minecraft has sold more than 200 million copies. Candy Crush Saga, which became a part of Activision Blizzard Inc. in 2016, ranks among the most popular games on Apple Inc.’s iOS platform, according to analytics firm App Annie.

Still, with growth rates for the industry set to return back to normalized levels later in 2021 and valuations near all-time peaks, “there’s little room for error in terms of execution to meet elevated expectations,” Bloomberg Intelligence’s Kanterman said.

On Monday, Stillfront shares fell 0.8% at 11.40 a.m. local time, outperforming the OMX Stockholm All-Share Index, which dropped 2.1%. Embracer and G5 Entertainment retreated by 2.7% and 3.2%, respectively.

©2020 Bloomberg L.P.

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