Gaming Innovation Group

Corporate Research Gaming Innovation Group NOT TO BE DISTRIBUTED IN, OR TAKEN OR TRANSMITTED INTO, THE UNITED STATES, CANADA, JAPAN, AUSTRALIA OR IN ANY OTHER JURISDICTION WHERE TO DO SO WOULD BE UNLAWFUL. Results Preview Leisure Norway 21 April 2021 Results due: 5 May Strong market plays in GiG’s favour The investment case remains centred around the company’s transition and we expect the next leg to deliver growth, and profitability to scale as it does, with the long-term EBITDA margin target of >40% being credible in our view. We have made minor positive estimate changes and we expect good market activity to have benefitted GiG in Q1. Our DCF value range is updated to SEK 25- 37 and our SOTP value is SEK 27 per share. Key Data (2021E) Price (SEK) 22.60 Transformation coming into place, 2021 could be a pivotal year Reuters GIGSEK.ST With support from revenue growth in 2021, we expect it could be a pivotal year for GIGSEK.SS Bloomberg GiG, including meaningful EBITDA margin expansion. We estimate 15% revenue Market cap (SEKm) 2,034 CAGR in 2020-23 and the EBITDA margin expanding to 37.5%. Market cap (USDm) 241 Market cap (EURm) 201 Industry trading updates point to good market activity in Q1 Net debt (EURm) 34 We have raised our EBITDA estimates 2-3% for 2021-23. At the end of Q4 the Net gearing 526% Net debt/EBITDA (x) 1.5 company had 14 brands waiting to launch with its Platform, which should safeguard growth in 2021 and support a high growth pace in 2022. For Q1 we Shares fully dil. (m) 900.0 estimate EUR 15.0m in normalised revenues, +40% y/y (in line with the trading Avg daily turnover (m) 0.0 update for January), and EUR 4.9m in EBITDA, i.e. a 32.9% normalised margin, up Free float 54% 3.7pp q/q. Key industry peer Catena Media preannounced Q1 figures with revenue up c. 50% q/q, thanks largely to strong activity in the US; we expect a strong US market will also be beneficial for GiG although to a lower magnitude given its smaller footprint; however, the company has not disclosed the exact number. Updated DCF range of SEK 25-37; SOTP suggests SEK 27 The stock currently trades at EV/EBITDA of 10.6x on 2021 on our updated Estimate Revisions (%) estimates, which reflects a scenario where the company achieves double-digit 2021E 2022E 2023E Revenues 1 3 3 growth (normalised) and expands its EBITDA margin to ca. 35%. The stock has Adj. EBIT 6 5 5 seen strong performance over the past quarters, as evidence of the turnaround and Adj. EPS 18 9 7 improved earnings outlook has been given, and sentiment in the sector is strong. Share Price (12M) Financials (EUR) Year end: Dec 2019 2020 2021E 2022E 2023E 25 Revenues (m) 123 83 82 94 103 20 Adj. EBIT (30) (7) 9 16 19 15 Pre-tax profit (m) (64) (12) 3 10 13 EPS (0.72) (0.14) 0.03 0.10 0.13 10 Adj. EPS (0.23) (0.12) 0.03 0.10 0.13 5 DPS 0.00 0.00 0.00 0.00 0.00 0 Revenue growth (%) (18.7) (32.5) (1.2) 14.3 9.7 May Jul Aug Oct Dec Mar Adj. EBIT growth (%) n.m. n.m. n.m. 74.6 18.5 Adj. EPS growth (%) n.m. n.m. n.m. 203.2 29.0 Absolute (green) / Relative to Norway (purple). Adj. EBIT margin (%) (24.4) (8.3) 11.0 16.8 18.2 ROE (%) n.m. (95.0) 58.3 81.2 54.3 ROCE (%) (23.6) (8.6) 15.4 24.4 25.0 Marketing communication commissioned by: PER (x) n.m. n.m. 67.9 22.4 17.4 Free cash flow yield (%) (3.2) (0.7) 3.8 6.1 6.3 Gaming Innovation Group Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 P/BV (x) 3.14 29.67 30.64 12.94 7.41 EV/Sales (x) 1.13 1.79 2.87 2.38 2.04 EV/Adj. EBITDA (x) 9.8 11.7 10.3 8.2 7.1 EV/Adj. EBIT (x) (4.6) (21.7) 26.0 14.1 11.2 Operating cash flow/EV (%) 6.9 5.0 6.7 9.8 11.3 Net debt/Adj. EBITDA (x) 4.89 3.32 1.52 0.82 0.32 Source for all data on this page: SEB (estimates) and Millistream/Thomson Reuters (prices) research.sebgroup.com/corporate Important. All disclosure information can be found on pages 11 – 13 of this document Results Preview Marketing communication commissioned by: Gaming Innovation Group 21 April 2021 2 Estimate update GiG has issued long-term financial targets of annual double-digit organic revenue growth and an EBITDA margin in excess of 40% by 2025. Cash flow will be used to deleverage and be deployed to pursue growth opportunities. This can be compared with our estimate profile with normalized EBITDA margin expanding to 37.5% in 2023. The main enabler is continued growth in the high margin Media Services segment (~50%) and for Platform Services to recover to healthy margins (~25%) aided by revenue growth. The contribution in absolute terms from the Sport Betting Services is not expected to be material in our forecasts. We make minor estimate revisions ahead of the Q1 report: EBITDA is raised 2- 3% for 2021-23E. Key industry peer Catena Media provided a strong trading update for Q1, with ca. 50% growth q/q largely explained by a strong US affiliate market. We forecast EUR 15.0m in normalised revenue in Q1, corresponding to 40% y/y growth which is in line with the trading update for January and EUR 4.9m in EBITDA corresponding to a margin of 32.9%, a 3.7pp strengthening q/q. In the quarter GiG announced a Platform Services contract with a German iGaming operator, with an expected launch in Q3 2021 stretching for a minimum of four years. It also signed a new customer in the US, Playstar, with a minimum duration of four years with expected launch in Q4 2021 in New Jersey. A not-yet launched contract with a European media group (signed in December), was terminated due to GiG no longer supporting white label operations. No meaningful impact on outlook is expected from the termination according to a company press release. Revenue and EBITDA, new GiG, normalised and reported New GiG - B2B Q1/20 Q2/20 Q3/20 Q4/20 Q1/21E Q2/21E Q3/21E Q4/21E 2020 2021E 2022E 2023E Revenue reported 11.2 16.7 17.9 17.3 19.1 19.9 21.0 22.0 63.0 82.0 93.7 102.8 Revenue normalised 10.7 13.2 14.2 14.2 15.0 15.6 16.6 17.4 52.3 64.5 73.3 79.3 growth y/y -13.0% 16.3% 40.2% 38.2% 40.1% 18.0% 16.8% 22.3% 19.3% 23.2% 13.7% 8.2% EBITDA 0.6 2.8 3.2 4.1 4.9 5.3 6.0 6.4 10.8 22.7 27.1 29.7 margin normalised 5.6% 21.2% 22.5% 29.2% 32.9% 34.4% 36.3% 37.1% 20.6% 35.2% 36.9% 37.5% Source: SEB Estimate revisions New estimates Old estimates Difference % (SEKm) 2021E 2022E 2023E 2021E 2022E 2022E 2021E 2022E 2022E Net sales 82.0 93.7 102.8 81.3 91.4 100.2 1% 3% 3% Gross Profit 77.9 89.1 97.7 77.3 86.9 95.3 1% 3% 3% EBITDA 22.7 27.1 29.7 22.2 26.3 28.9 2% 3% 3% EBIT 9.0 15.8 18.7 8.5 15.0 17.8 6% 5% 5% PTP 3.3 10.1 13.0 2.8 9.3 12.1 18% 9% 7% EPS 0.03 0.10 0.13 0.03 0.09 0.12 18% 9% 7% Normalized revenue 64.5 73.3 79.3 64.0 71.3 77.1 1% 3% 3% EBITDA adj. 22.7 27.1 29.7 22.2 26.3 28.9 2% 3% 3% Margins EBITDA margin 27.7% 28.9% 28.9% 27.3% 28.7% 28.8% 0.4% 0.1% 0.1% EBITDA normalized margin 35.2% 36.9% 37.5% 34.7% 36.9% 37.5% 0.6% 0.0% 0.0% EBIT margin 11.0% 16.8% 18.2% 10.5% 16.4% 17.8% 0.5% 0.4% 0.4% Revenue Media Services 39.0 41.3 43.3 38.3 40.4 42.5 2% 2% 2% Platform Services 41.8 50.9 57.8 41.8 49.4 56.1 0% 3% 3% Sport Betting Services 1.2 1.5 1.7 1.2 1.5 1.7 0% 0% 0% EBITDA Media Services 18.5 19.6 20.6 18.0 19.0 20.0 3% 3% 3% Platform Services 4.0 7.2 8.8 4.0 7.0 8.5 0% 3% 3% Sport Betting Services 0.2 0.3 0.4 0.2 0.3 0.4 0% 0% 0% Source: SEB Corporate Research NOT TO BE DISTRIBUTED IN, OR TAKEN OR TRANSMITTED INTO, THE UNITED STATES, CANADA, JAPAN, AUSTRALIA OR IN ANY OTHER JURISDICTION WHERE TO DO SO WOULD BE UNLAWFUL.

Load more