Gaming Innovation Group Reason: Post-Results Comment
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Equity Research - 05 November 2020 19:03 CET Gaming Innovation Group Reason: Post-results comment Continued improvements Company sponsored research Sequential improvements... Not rated Environ. Social. Govern. …but Q4 guidance lowered ABGSC ESG weight 20% 40% 40% Continued US expansion awaits Estimate changes (%) 2020e 2021e 2022e Solid momentum in client signings Sales 0.0% 0.2% 0.2% We note continued sequential improvements, with revenue coming to EBIT (rep) 36.3% -16.4% -4.7% EUR 17.9m (up 8% q-o-q) and EBITDA to EUR 3.2m (up 12% q-o-q). EPS (rep) 14.2% -46.2% -18.6% Operationally, we note that the pipeline continues to look solid, with six Source: ABG Sundal Collier new contracts signed within platform services during ‘Q3. On top of this, 05/11/2020 GIG notes that WSN.com continues to grow in the US market with “an Share price (SEK) 7.4 ATH in September and a presence in nine states”. Fair value range (per share) na FY sales expected toward the lower range of guidance Online Gaming, Norway In October, GiG’s revenue on an adjusted basis, i.e. when excluding Sky GAMIG.OL/GIG NO City, was up 48% compared to the same period last year. Due to short- term headwinds from e.g. Germany transitioning into regulation, MCap (SEKm) 664 however, there will be some negative short-term impact. As such, MCap (EURm) 65 management guided that adjusted revenues for full year will end in the Net debt (EURm) 41 lower range of previous guidance (e.g. EUR 52-57m), and that FY EBITDA will amount to around EUR 11m (vs. prior guidance of EUR 12- No. of shares (m) 90.0 15m). In light of this, we have lowered our adj. Q4 estimates while Free float (%) 100 leaving our 2021 and 2022 estimates largely unchanged (note small Av. daily volume (k) 1 changes in absolute terms). Questions remain GiG appears to have good momentum in terms of contract wins, and we Performance note the recently signed long-term agreement with Ireland’s Slotbox 160 Limited. As previously discussed, however, the termination of the Hard 140 120 Rock International contract was arguably a negative. While this contract 100 only made up a small portion of revenue (~2%), Hard Rock was seen as 80 a blue-chip customer. We believe the termination raises questions 60 40 surrounding GiG’s offering, particularly given that Hard Rock’s own brand 20 has yet to take off in the US iGaming market. As noted above, GiG’s 0 18 19 20 17 18 19 18 19 20 18 19 20 18 19 20 -20 18 19 20 expansion into affiliate marketing in the US is set to continue. This could Jul Jul Jul Jan Jan Jan Mar Mar Mar Nov Nov Nov Sep Sep Sep May May May provide another growth lever, but the competition will be fierce, and GiG Gaming Innovation Group OSE GI will have to play catch-up with competitors who in some instances 1m 3m 12m already have domains and teams ready for +20 teams. Absolute (%) -1.8 -5.1 0.1 OSE GI (%) -99.2 -99.2 -99.3 Analyst(s): Erik Moberg Aksel Øverland Engebakken Source: FactSet EURm 2018 2019 2020e 2021e 2022e 2020e 2021e 2022e Sales 151 123 83 78 82 P/E (x) -7.9 38.5 8.6 EBITDA 3 -30 16 22 24 P/E adj (x) -7.9 38.5 8.6 EBITDA margin (%) 1.8 -24.4 19.8 27.9 29.1 P/BVPS (x) 6.74 5.77 3.45 EBIT adj -17 -56 -3 5 8 EV/EBITDA (x) 6.4 4.3 3.4 EBIT adj margin (%) -11.4 -45.3 -4.1 6.0 10.2 EV/EBIT adj (x) -31.2 20.3 9.7 Pretax profit -19 -64 -8 2 8 EV/sales (x) 1.27 1.21 0.99 EPS rep -0.22 -0.72 -0.09 0.02 0.08 ROE adj (%) -51.1 16.2 50.4 EPS adj -0.22 -0.72 -0.09 0.02 0.08 Dividend yield (%) 0 0 0 FCF yield (%) 58.0 20.4 25.2 Sales growth (%) 25.7 -18.7 -32.3 -6.6 5.0 Lease adj. FCF yld (%) 53.6 16.0 20.9 EPS growth (%) -4,611.8 -226.8 87.4 120.6 349.6 Net IB debt/EBITDA 2.5 1.4 0.7 Source: ABG Sundal Collier, Company data Lease adj. ND/EBITDA 2.0 0.8 0.1 Please refer to important disclosures at the end of this report This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II. Gaming Innovation Group Company description Risks GIG is a young company that sells products to a large part We view GIG as a high-risk business case due to the of the online gambling value chain. It sells marketing inherent nature of the business and the current financial services to other gambling operators and sells its own profile. We sew regulatory risks (could face litigation if it software platform and sportsbook to other B2C operators, fails to comply with local laws and practices in the regions as well as land-based casinos, enabling them to offer where it operates) and counterparty risk (faces many casino and sports betting services. GIG’s footprint is in counterparties, and some customers on the B2B side are Western Europe, but it also has US exposure through smaller firms with low levels of solidity). We also note that selling B2B services. GIG is exposed to financial risk as it has a long-term bond due in June 2022 coupled with a commitment (through its bond agreement) to deliver break-even EBITDA in its sportsbook by Q3 2020e. Annual sales and adj. EBIT margin Quarterly sales and adj. EBIT margin 160 20.0 35 20.0 0.0 140 10.0 30 120 -20.0 0.0 25 -40.0 100 -10.0 20 -60.0 80 -20.0 15 -80.0 60 -100.0 -30.0 10 40 -120.0 -40.0 5 20 -140.0 0 -50.0 0 -160.0 2014 2015 2016 2017 2018 2019 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 2020e 2021e 2022e Q4'20e Sales (LHS) Adj EBIT margin % (RHS) Sales (LHS) Adj EBIT margin % (RHS) Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data EPS estimate changes, 2020e, EUR EPS estimate changes, 2021e, EUR 0.02 0.08 0.00 0.06 -0.02 0.04 -0.04 0.02 -0.06 0.00 -0.08 -0.10 -0.02 -0.12 -0.04 Jul-20 Jul-20 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Aug-20 Sep-20 Oct-20 Nov-20 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Aug-20 Sep-20 Oct-20 Nov-20 ABGSC FactSet Consensus Mean ABGSC FactSet Consensus Mean Source: ABG Sundal Collier, FactSet Source: ABG Sundal Collier, FactSet Net debt and ND/EBITDA adj. 12month forward-looking P/E 60 20.0 10,000.0 (0.0) 50 15.0 40 (10,000.0) 10.0 (20,000.0) 30 5.0 (30,000.0) 20 (40,000.0) 0.0 10 (50,000.0) 0 -5.0 (60,000.0) 2014 2015 2016 2017 2018 2019 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 2020e 2021e 2022e Net debt adj. (LHS) ND/EBITDA adj. (RHS) P/E f12m 5y avg Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data 5 November 2020 ABG Sundal Collier 2 Gaming Innovation Group Q3 Deviation table Deviation Deviation Actual ABGSC Cons. P&L (EURm) Q3 19 Q3 20 Q3 20e EURm % Cons. EURm % Revenue 10.1 17.9 17.4 0.6 3.3% 17.0 -0.9 5.5% Change % y-o-y -35% 78% 0.7 0.1 7.9% COGS -0.2 -0.9 -0.3 -0.6 161.0% Gross Profit 9.8 17.0 17.0 0.0 0.1% 17.0 0.0 0.1% Marketing expenses -1.3 -4.5 -4.3 -0.2 4.5% % of Sales -13% -25% -0.3 0.0 Other Opex -10.1 -9.1 -8.6 -0.4 5.0% % of Sales -13% -25% -0.3 0.0 Total Opex -11.4 -13.6 -13.0 -0.6 4.8% -13.0 0.6 4.5% EBITDA -1.5 3.4 4.0 -0.6 (15.1%) 4.0 0.6 (14.1%) EBITDA margin -15.3% 19.2% 23.3% 0.0 23.5% D&A: 0.0 -4.8 -4.6 -0.2 4.6% EBIT -1.5 -1.4 -0.6 -0.8 -1.0 0.4 EBIT margin -15.3% -7.7% -3.2% 0.0 Financial income 0.0 -1.2 0.4 -1.5 Other Income (expense) 0.0 0.3 -0.8 1.1 Net Financial 0.0 -0.9 -0.5 -0.4 Pre-tax income -1.5 -2.3 -1.0 -1.2 Revenue bridge: 17.9 17.4 0.6 Sportsbook 0.2 0.4 -0.2 B2B Platform services 9.1 8.3 0.8 Affiliate 8.6 8.6 0.0 Discontinued 0.0 0.0 0.0 Revenue bridge (Normalized B2B)* 14.2 13.8 0.4 Sportsbook 0.2 0.4 -0.2 B2B Platform services 5.4 4.8 0.6 Affiliate 8.6 8.6 0.0 Discontinued 0.0 0.0 0.0 EBITDA bridge: 3.4 4.0 -0.6 Sportsbook -0.5 0.0 -0.5 B2B Platform services -0.1 -0.3 0.2 Affiliate 4.0 4.3 -0.3 Discontinued 0.0 0.0 0.0 Source: ABG Sundal Collier, company data 5 November 2020 ABG Sundal Collier 3 Gaming Innovation Group Detailed P&L Quarterly New GiG (B2B & Affiliate) P&L (In EURm) Q1 20 Q2 20 Q3 20 Q4 20e Revenue 11.2 16.7 17.9 17.5 Change % y-o-y NM 47% 78% 69% COGS -0.4 -0.8 -0.9 -0.8 Gross Profit 10.7 15.9 17.0 16.7 Marketing expenses -1.7 -4.5 -4.5 -4.4 % of Sales -15% -27% -25% -25% Other Opex -8.5 -8.5 -9.1 -8.8 % of Sales -76% -27% -25% -25% Total Opex -10.1 -13.0 -13.6 -13.1 EBITDA 0.6 2.8 3.4 3.6 EBITDA margin 5% 17% 19% 20% D&A: -5.3 -5.0 -4.8 -4.6 EBIT -4.7 -2.2 -1.4 -1.0 EBIT margin 4% -13% -8% -6% Financial income 0.4 -1.4 -1.2 -1.0 Other Income (expense) 0.0 -1.5 0.3 0.2 Net Financial 0.4 -2.9 -0.9 -0.8 Pre-tax income -4.3 -5.1 -2.3 -1.8 Revenue bridge: 11.2 16.7 17.9 17.5 Sportsbook 0.2 0.1 0.2 0.2 B2B Platform services 3.8 8.2 9.1 9.2 Affiliate 8.2 8.6 8.6 8.1 Discontinued -1.0 -0.2 0.0 0.0 Revenue bridge (Normalized B2B)* 10.6 13.1 14.2 13.8 Sportsbook 0.2 0.1 0.2 0.2 B2B Platform services 3.8 4.7 5.4 5.5 Affiliate 8.2 8.6 8.6 8.1 Discontinued -1.6 -0.3 0.0 0.0 EBITDA bridge: 0.6 2.8 3.4 3.6 Sportsbook -1.7 -0.9 -0.5 -0.2 B2B Platform services -1.6 -0.9 -0.1 0.0 Affiliate 4.5 4.8 4.0 3.7 Discontinued -0.6 -0.2 0.0 0.0 Source: ABG Sundal Collier, company data 5 November 2020 ABG Sundal Collier 4 Gaming Innovation Group ESG profile Company ESG / ESG activities Key issues* ABGSC weight Gaming Innovation Group's sustainability strategy focuses on areas that are most relevant to its business, which is responsible gambling.