Gaming Realms: Expected To Move Into Profit In 2015
Edison | Apr 23, 2015 12:37AM ET
Playing for real
With the building blocks in place, Gaming Realms PLC (LONDON:GMRG) is now rapidly scaling up, demonstrating that there is plenty of room in the UK online casino and bingo market for an innovative new entrant. Final results were as expected, Q115 KPIs were encouraging and our profit forecasts are unchanged. The 2016e EV/EBITDA is 8.5x, falling to only 5.4x for 2017e. Management’s track record and marketing skills underpin our confidence in the material upside potential for Gaming Realms.
Milestones being passed
During H214 Gaming Realms successfully passed two important milestones: the launch of its new proprietary platform and of the SpinGenie casino brand. It also extended its marketing capability with the acquisition of Blueburra (for an initial £5.0m). SpinGenie already has over 22,000 depositing players (c 1.2% of the UK online slot market according to Kadence) with 61% of registrations coming via mobile devices. Confidence in the platform’s scalability is demonstrated by the migration of PocketFruity, while the recent launch of Slingo adds an exclusive real money version of the long-established social bingo/casino brand (which had 52m monthly active players at its peak).
Expected to move into profit in 2015
Gaming Realms is early stage and heavy investment in marketing and platform development in 2014 produced an EBITDA loss of £7.8m (slightly less than forecast), on revenues of £11.2m. Q115 revenue of £3.8m is up 23% on the seasonally strong Q414 (real money gaming revenue up 80%). Our full-year profit estimates are unchanged but we have reduced FY15e revenue by £2m, mainly to reflect the recent sale of the Bingo Godz/Castle Jackpot assets. The balance sheet is strong with £4.0m of net cash at December 2014. We estimate that Gaming Realms may need further equity or debt to fund its development during 2015, but cash conversion will be high once it reaches critical mass in 2016/17.
Valuation: substantial upside potential
We are encouraged by early demonstrations of the new platform’s robustness. With the new brands gaining traction and Gaming Realms’ strong marketing capability, we see substantial upside potential for the group. A 2016e EV/EBITDA of 8.5x, c 20% below the peer group average, suggests an attractive risk/reward ratio.
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