Gaming Realms: Substantial Upside Potential
Edison | May 27, 2014 05:46AM ET
Only formed in August 2013, Gaming Realms PLC (LONDON:GMRG) aims to take a meaningful share of the UK online bingo and casino market, capitalising on management’s successful track record and the growth in mobile and entertainment-led gambling. The group is investing heavily in marketing, but we forecast a small positive EBITDA in 2015, with profits increasing very strongly thereafter. The 2016e EV/EBITDA is 5.5x, falling to only 2.4x for 2017e, suggesting very attractive potential share price upside.
Gaming Realms’ management is highly experienced and has already led a very successful gaming company (Cashcade, sold to bwin.party for £96m in 2009). While quoted UK operators have reported a mature and competitive internet bingo market, industry data reports positive growth, private operators have continued to perform well, mobile gaming is growing strongly and the c 10 million UK social gamers that do not currently gamble online represent a large market opportunity. Gaming Realms has identified an opportunity to expand rapidly with a mobile-led offering and brands that apply social games techniques to real money gambling.
h3 ‘J-curve’ of profits and cash/h3Gaming Realms is investing heavily in marketing, product and platform development. We expect it to achieve a small EBITDA profit in 2015, which should increase rapidly as revenue builds. Platform stability issues with Bingo Godz mean that our 2017e EBITDA estimate of £11.0m is a year later than market consensus envisaged last August, but the software supplier is working to address the issue and the impact has been partly mitigated by allocating marketing spend to other brands. The group will require debt or equity funding as it develops; once in profit, cash conversion should be high and we estimate £12m of cash by end 2017.
h3 Valuation: Substantial upside potential/h3We believe there is plenty of room for an innovative new entrant to the online gaming market and that Gaming Realms has substantial upside potential, albeit that success within a competitive market is not yet assured. The peer group currently stands on a 2015e EV/EBITDA multiple of 7.5x; if we apply this to Gaming Realms’ 2017e earnings it points to a share price of 55p, over 2.5 times the current level, although a higher premium could be applied if this fully regulated business achieves our substantially above average EBITDA growth targets (75% in 2017e).
Get The News You Want
To Read the Entire Report Please Click on the pdf File Below
/h3
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.