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A strong end to the debut year of the larger group

Gamesys Group 12 January 2021 Update
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Gamesys Group

A strong end to the debut year of the larger group

Q420 trading update

Travel & leisure

12 January 2021

Price

1,256p

Market cap

£1,367m

Net debt (£m) at 30 June

391.7

Shares in issue

108.7m

Free float

74%

Code

GYS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.6

1.3

75.2

Rel (local)

9.9

(10.8)

92.0

52-week high/low

1,312p

531p

Business description

Gamesys is a leading international online gaming operator with key exposure in the UK and Asia. The group was formed after JPJ Group acquired Gamesys for £490m in September 2019.

Next events

FY20 results

March 2021

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

Gamesys Group is a research client of Edison Investment Research Limited

Gamesys has reported a positive pre-close trading update. Strong momentum continued into Q420 and management now expects FY20 pro forma revenue and adjusted EBITDA will be at or above the upper end of current market expectations. We increase our FY21 and FY22 adjusted EBITDA forecasts by 4–6% due to higher revenue growth from a larger active customer base, and a higher and stable EBITDA margin that reflects ongoing investment in growing a sustainable business with a focus on responsible gambling. On our new forecasts, the free cash flow (FCF) yield for FY21e is 10.1% and the dividend yield is 3.0%.

Year end

Revenue (£m)

EBITDA*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

319.6

112.7

118.5

0.0

10.6

N/A

12/19**

565.3

158.9

100.4

0.0

12.5

N/A

12/20e**

724.0

200.8

132.2

36.0

9.5

2.9

12/21e**

796.4

220.8

151.9

37.8

8.3

3.0

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma.

Q420: Ahead of expectations

Gamesys’s pre-close trading update highlighted better than expected growth for Q420 with revenue and adjusted EBITDA for FY20 guided at or above the upper end of current market expectations. The company compiled consensus ranges for FY20 prior to the update were: revenue (£713–722.2m) and EBITDA (£193.3–198.4m), therefore the update implies pro forma revenue growth for Q420/FY20 of at least 25.6%/27.8% respectively. As expected, due to a tougher comparative in Q420, the y-o-y revenue growth rate ‘slowed’ from 35% and 31% in the prior two quarters. The FY20 EBITDA margin of at least 27.5% is higher than our prior forecast of 26.9%, even though internal investment increased. The higher than expected profit outturn is likely to have led to a further improvement in the group’s financial position at the year-end.

FY21: Adjusted EBITDA upgrade of c 4%

We increase our revenue forecast for FY20 by c 1% and we assume 10% y-o-y growth in both FY21 and FY22 due to higher customer numbers, leading to EBITDA upgrades of 4–6%. In FY21 and FY22 we assume the EBITDA margin will be stable at 27.7% as management continues to take advantage of the strong growth in revenue to further invest in growing a sustainable and repeatable business. In addition, we trim our interest cost assumption for FY21 and FY22 given the group’s expected improved financial position. We retain our existing DPS forecasts, growing at 5% in FY21 and FY22 after the maiden dividend in FY20.

Valuation: FCF yield of 10.1% for FY21e

After reaching an all-time high in October 2020 the share price has recently recovered most of its subsequent pull-back. On our new forecasts, the P/E for FY21e is 8.3x and the EV/EBITDA is 8.0x. The FCF yield of 10.1% and improving financial position makes the dividend yield of 3.0% attractive.

Exhibit 1: Financial summary

£m

2017

2018

2019

2020e

2021e

2022e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

304.7

319.6

565.3

724.0

796.4

876.0

Cost of Sales

(147.5)

(158.9)

(287.9)

(383.9)

(421.5)

(462.9)

Gross Profit

157.2

160.7

277.4

340.1

374.9

413.1

EBITDA

 

 

108.6

112.7

158.9

200.8

220.8

243.0

Operating Profit (before amort. and except.)

 

 

108.2

112.2

140.9

182.8

202.8

225.0

Intangible Amortisation

(62.6)

(60.3)

(52.7)

(77.0)

(77.0)

(77.0)

Exceptional and other items

(104.9)

(16.3)

(23.4)

0.0

0.0

0.0

Share based payments

(1.4)

(0.6)

(0.5)

(2.4)

(2.4)

(2.4)

Operating Profit

(60.8)

35.0

64.3

103.4

123.4

145.6

Net Interest

(30.0)

(19.5)

(21.4)

(23.0)

(19.0)

(17.0)

Profit Before Tax (norm)

 

 

78.2

92.7

119.5

159.8

183.8

208.0

Profit Before Tax (FRS 3)

 

 

(65.8)

18.5

44.2

80.4

104.4

128.6

Tax

(0.7)

(0.5)

(2.9)

(16.0)

(18.4)

(20.8)

Profit After Tax (norm)

77.5

92.3

116.5

143.8

165.4

187.2

Profit After Tax (FRS 3)

(66.5)

18.1

41.3

64.4

86.0

107.8

Average Number of Shares Outstanding (m)

73.9

74.2

108.7

108.7

108.8

108.9

EPS (p)

104.9

119.5

100.4

132.3

152.1

171.9

EPS - normalised (p)

 

 

103.9

118.5

100.4

132.2

151.9

171.7

EPS - (IFRS) (p)

(90.0)

19.5

31.2

59.2

79.1

98.9

Dividend per share (p)

0.0

0.0

0.0

36.0

37.8

39.7

Gross Margin (%)

51.6

50.3

49.1

47.0

47.1

47.2

EBITDA Margin (%)

35.6

35.3

28.1

27.7

27.7

27.7

Operating Margin (before GW and except.) (%)

35.5

35.1

24.9

25.2

25.5

25.7

BALANCE SHEET

Fixed Assets

 

 

595.9

521.9

1,045.6

968.6

893.6

818.6

Intangible Assets

589.0

514.7

1,008.7

940.7

873.7

806.7

Tangible Assets

1.3

2.2

31.7

22.6

14.6

6.6

Other long term assets

5.6

5.0

5.2

5.2

5.2

5.2

Current Assets

 

 

93.2

124.0

165.9

227.6

282.3

356.6

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

Debtors (incl swaps)

26.0

30.5

53.2

58.2

63.2

68.2

Cash

59.0

84.4

100.3

156.0

204.6

273.0

Player balances

8.2

9.0

12.4

13.4

14.4

15.4

Current Liabilities

 

 

(98.5)

(52.3)

(122.6)

(117.6)

(112.6)

(107.6)

Creditors

(46.3)

(47.8)

(117.9)

(112.9)

(107.9)

(102.9)

Short term borrowings

(0.3)

0.0

(4.7)

(4.7)

(4.7)

(4.7)

Contingent consideration

(51.9)

(4.5)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(386.7)

(374.5)

(624.2)

(574.2)

(524.2)

(474.2)

Long term borrowings

(369.5)

(371.5)

(545.8)

(495.8)

(445.8)

(395.8)

Contingent consideration

(7.7)

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(9.4)

(3.0)

(78.3)

(78.3)

(78.3)

(78.3)

Net Assets

 

 

204.1

219.1

464.7

504.4

539.0

593.4

CASH FLOW

Operating Cash Flow

 

 

102.0

106.8

100.8

175.8

195.8

218.0

Net Interest

(30.9)

(19.5)

(22.7)

(23.0)

(19.0)

(17.0)

Tax

(1.0)

(0.8)

(3.0)

(16.0)

(18.4)

(20.8)

Capex

(3.2)

(5.3)

(16.7)

(18.0)

(20.0)

(20.0)

Acquisitions (inc earn-outs)

(94.2)

(55.3)

(462.0)

0.0

0.0

0.0

Financing

22.2

(2.3)

240.5

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

(13.0)

(39.8)

(41.8)

Net Cash Flow

(5.2)

23.6

(163.2)

105.8

98.7

118.3

Opening net debt/(cash)

 

 

305.6

310.7

287.1

450.3

344.5

245.9

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

310.7

287.1

450.3

344.5

245.9

127.5

NPV of outstanding earnouts/ other

 

 

76.6

15.0

0.0

0.0

0.0

0.0

Currency swaps

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Adjusted net debt

 

 

387.3

302.1

450.3

344.5

245.8

127.4

Source: Gamesys Group accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Gamesys Group and prepared and issued by Edison, in consideration of a fee payable by Gamesys Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Gamesys Group and prepared and issued by Edison, in consideration of a fee payable by Gamesys Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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