32Red Upping Its Game
Edison | Sep 21, 2016 05:02AM ET
32Red (LON:TTRL)’s brand punches above its weight in the UK online casino market. Management has adopted a more aggressive stance since mid-2015, both in terms of marketing and with the highly accretive £8.4m Roxy Palace acquisition.
Interims show H116 EBITDA rising to £4.5m (H115: £1.2m) and we initiate with forecast EPS more than doubling in 2016 and growing by over 65% between 2016 and 2018. Yet the 2016e P/E is only 13.5x and our peer group comparison and DCF suggest a value of 193-247p per share, 46-86% above the current share price.
Leveraging its well-recognised online casino brand
32Red is a well-recognised UK online casino brand, yet it only has a 3% share of a fast-growing market. It adopted a more aggressive ROI-based marketing approach in mid-2015 and has reported 32% l-f-l revenue growth for H116. The acquisition of the Roxy Palace online casino in July 2015 added further scale, with overall H116 revenue up 63%.
The group’s growing confidence is reflected in new high-profile marketing deals (eg Leeds United, ITV (LON:ITV) brands). A new deal with platform provider Microgaming, announced today, is excellent news and gives greater product flexibility. Elsewhere, 32Red’s small Italian operation is scaling up rapidly and will achieve break-even this year, while other geographies offer expansion potential.
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