Stride Gaming is a leading online gaming operator in the UK. It uses its proprietary and purchased software to provide online bingo and slot gaming. It was formed in 2012 and only operates in regulated real money gaming markets.
Investment summary
Stride’s AGM confirmed that trading for the current financial year has been broadly in line, despite well documented regulatory headwinds. To counterbalance rising gaming taxes and other sector pressures, the group is implementing numerous cost-cutting initiatives, which will be key to hitting our FY19 EBITDA estimate. Looking ahead, we expect growth to resume in FY20 (once many regulatory burdens have been lapped) and we believe Stride will take market share within a disrupted industry. Cash conversion is c 90% and the new payout policy leads to a 15.0% yield in FY19 (including the special dividend). The stock continues to trade at a meaningful discount to peers, at 3.7x EV/EBITDA and 6.5x P/E for CY19e.
Regulatory burdens are increasing, with POCT on free bets (from 2017) and a rise in remote gaming duty from 15%-21% being implemented from April 2019. Operators need to comply with other measures including social responsibility, source of funds, GDPR, AML etc. The recent £7.1m fine for procedural failures from the Gambling Commission is evidence of the stricter regulatory environment.
