Another step change in scale

Stride Gaming 19 September 2016 Update

Stride Gaming

Another step change in scale

Acquisitions/trading update

Travel & leisure

19 September 2016

Price

272p

Market cap

£181m

$1.30/€1.17/£

Net cash (£m) at 31 August (est)

4.0

Shares in issue

66.5m

Free float

33%

Code

STR

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.0

10.1

6.9

Rel (local)

3.8

1.1

6.7

52-week high/low

317.5p

215p

Business description

Stride Gaming is an online gaming operator in the bingo-led and global social gaming markets. It uses its proprietary and purchased software to provide online bingo and slot gaming and a social gaming mobile app. It was formed in 2012 and only operates in regulated markets.

Next events

Final results

November 2016

Analysts

Jane Anscombe

+44 (0)20 3077 5740

Katherine Thompson

+44 (0)20 3077 5730

Stride Gaming is a research client of Edison Investment Research Limited

We have materially increased our FY17 profit forecasts for Stride (EPS raised by 14%) to reflect the acquisitions of Tarco and 8Ball and a positive trading update. The acquisitions double Stride’s estimated share of the UK online bingo market from 5% to 10% and are earnings accretive from day one. They mark a significant step forward in Stride’s ambition to be a global leader in digital soft gaming verticals. Its considerable progress is not yet reflected in its calendar 2017e EV/EBITDA of 8.3x.

Year
end

Revenue (£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/14

8.5

1.2

1.2

4.0

0.0

N/A

0.0

08/15

27.8

7.3

7.2

14.0

0.0

18.7

0.0

08/16e

47.2

12.3

11.2

19.6

2.4

13.9

0.9

08/17e

88.8

19.5

18.3

22.5

2.7

12.1

1.0

08/18e

103.0

21.0

19.6

23.6

2.9

11.5

1.1

Note: *Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Buy-and-build strategy in soft gaming

The acquisitions of Tarco and 8Ball (on 31 August) add significant scale to Stride’s multi-branded, online bingo-led offering: it believes it is now the fourth largest online bingo operator in the UK. Both businesses are profitable and offer scope for cost and revenue synergies by leveraging Stride’s platform and marketing expertise. Stride paid £18.2m for Tarco (and its Netboost marketing arm) and £12.0m for 8Ball, with maximum earn-outs of £22m and £18m respectively, dependent on the achievement of aggressive EBITDA targets. The deals follow Stride’s previous move into social casino; it has indicated that it is also interested in other complementary soft gaming verticals such as online lottery and scratch cards.

Trading well with strong cash conversion

Stride’s trading update reports that FY16 NGR was “not less than £47m”, implying organic growth of c 30%. We now expect real money gaming (RMG) organic growth of 20% in FY17 (previously 12%) as we believe Stride is successfully taking share from rivals such as Sun Bingo and Mecca in a strong market. Adding in Tarco and 8Ball means that we are increasing our FY17e EBITDA and EPS estimates by 46% and 14% respectively. More synergy benefits should accrue in FY18, post the earn-out periods, outweighing the impact of the extension of POC gaming tax to free play from August 2017. With the £21.9m cash element of the initial consideration funded by a £27m share placing, the balance sheet is strong.

Valuation: potential not yet reflected in rating

Stride has grown very strongly since its formation in 2012 and, while all acquisitions carry an element of execution risk, management’s track record in online bingo gives us considerable confidence. The group has further potential to expand in a consolidating market. On our upgraded numbers, the 2017e calendarised P/E of 11.9x is below the peer group average of 13.2x. The recent successful share placing has widened the institutional shareholder base and increased the free float.

Stride’s buy-and-build strategy in soft gaming

Stride’s management team is among the most experienced in the industry. The acquisitions of Tarco and 8Ball fit well with its stated strategy and are highly complementary to the existing real money gaming (RMG) online bingo business (74% of FY16e NGR). Prior to these deals, Stride had made one acquisition since listing in May 2015: the $21.2m (£14.6m) acquisition of InfiApps (plus earn-out), a mobile social gaming company that also diversified it internationally (some 70% of its revenues coming from North America). Despite being announced simultaneously, the Tarco and 8Ball acquisitions represent two distinct deals. Both completed on 31 August (with trading in the 12.0m new placing shares having commenced on 24 August).

By way of a recap, Stride’s growth strategy has six core pillars:

Continue to build scale through strong organic growth and targeted acquisitions.

Expand presence in existing verticals, both in the UK and international regulated markets.

Enter into other soft gaming verticals such as lottery and scratch cards.

Take advantage of operational leverage through scale and significant consolidation opportunities.

Increase market share of the UK online bingo market to 15-20%.

Continue to increase profitability and scale.

Summary of the acquisitions

Tarco assets and Netboost Media

Tarco has an estimated 3% share of the UK online bingo market with 22 B2C brands (including Moon Bingo and Robin Hood Bingo), four B2B brands and c 63,000 monthly active players. It operates on the Dragonfish (888) platform. The deal also brings in Netboost Media, a data-driven marketing business that serviced the Tarco brands (with c 60 employees, based in Israel). Tarco/Netboost earned £2.54m of EBITDA on £17.40m of NGR in the 12 months to May 2016 (up from £2.26m and £15.87m, respectively, in calendar 2015).

Stride has paid an initial £16.0m for the Tarco assets (£7.7m in cash, £8.3m via the issue of 3.2m new shares) and £2.2m cash for Netboost. It will also pay the Tarco vendors an earn-out of up to £22m (51% cash/49% shares) based on the EBITDA for the 12 months to December 2017 (at a 7.5x multiple, implying 2017 EBITDA of £5.0m to achieve the maximum). The deal constituted a related party transaction since the Tarco and Netboost vendors included GAL Holdings (a 33% shareholder in Stride prior to the deal/placing, whose shareholders include Boyd and Sims).

8Ball

8Ball has an estimated 2% share of the UK online bingo market with over 60,000 active players and 74 brands – many more than any other operator. This multi-brand strategy enables it to re-market to players who churn and it often captures them on one of its alternative brands. It operates at the lower end of the market and achieves very low cost per acquisition (CPA) through its proprietary business intelligence platform, which is highly ranked for SEO (Booty Bingo is currently number three of all non ad-supported sites in Google search). Based in Cheshire, 8Ball has 30 employees, and the operations director will stay with Stride for at least two years post completion. It operates a multi-platform strategy, with brands hosted on the Dragonfish (888), Virtue Fusion (Playtech) and Cozy Games platforms. 8Ball earned £2.00m of EBITDA on £9.64m of NGR in the 12 months to May 2016 (up from £1.51m and £8.24m respectively in calendar 2015 helped, we believe, by some bolt-on acquisitions).

Stride has paid an initial £12.0m in cash to acquire 8Ball, which is debt-free; the vendors are the management team. An earn-out of up to £18.0m (a mix of cash and shares) is payable based on the performance of the business in the 12 months to end-August 2017. The earn-out is based on 6.0x EBITDA, implying FY17 EBITDA of £5.0m to achieve the maximum. The terms of the deal are equivalent to 6x adjusted EBITDA. The first £3m of the contingent consideration will be satisfied in ordinary shares, with the balance satisfied via a mixture of cash and shares at a ratio of 40/60.

Deal rationale

A step change in scale

The completed deals have the immediate impact of creating a step change in Stride’s position within the UK online bingo market. Gambling Compliance estimates that the UK online bingo-led market will be worth c £600m in 2016 (out of a total UK online gambling market of just over £3bn). Stride expects its market share to have doubled from 5% to 10% with the acquisitions. Its multi-brand strategy means that it has a much larger share by brand: it now operates just over 100 brands (having added 96), about a quarter of the estimated c 400 active bingo brands in the UK.

Exhibit 1: RMG Bingo UK (2016e) pre-acquisitions

Exhibit 2: RMG Bingo UK (2016e) post-acquisitions

Source: Stride Gaming August 2016 prospectus, Gambling Compliance Report 2015.

Exhibit 1: RMG Bingo UK (2016e) pre-acquisitions

Exhibit 2: RMG Bingo UK (2016e) post-acquisitions

Source: Stride Gaming August 2016 prospectus, Gambling Compliance Report 2015.

On a pro forma basis, Stride’s NGR for the 12 months to May 2016 would have been £71.8m and EBITDA would have been £16.6m. Exhibit 3 also shows the extent to which Tarco’s margin in particular is below that of Stride, indicating scope for improvement.

Exhibit 3: Pro forma including Tarco and 8Ball (LTM to May 2016)

 

Stride

Tarco

8Ball

Total

NGR

44.74

17.40

9.68

71.82

EBITDA

12.00

2.55

2.02

16.57

Margin

26.8%

14.6%

20.9%

23.1%

Source: Stride Gaming August 2016 prospectus

Cost synergies

Stride has indicated that it expects to achieve cost synergies of £2.3m post the earn-out period, from marketing (greater media buying power and shared marketing teams), administration and distribution. We expect it to continue to operate on a multi-platform basis, and indeed we believe it is now the biggest third-party operator on the Dragonfish platform by number of brands, but cross-sell to churning customers is likely to favour brands on its own platform.

Revenue synergies

Stride believes that it can obtain revenue synergies of about £3.0m post earn-out by improving player lifetime value (LTV), yield per player per month and the net cash hold. Stride’s LTV and yield (Exhibit 4) are much higher that either Tarco and 8Ball and while we believe this partly reflects the different customer mix, we also believe that Stride has better engagement, customer service and remarketing capabilities and should be able to close the gap somewhat.

Exhibit 4: Key KPI comparisons

LTV (£)

Yield* (£)

CPA (£)

Stride Gaming

474

162

99

Tarco

113

50

37

8Ball

276

41

18

Source: Stride Gaming prospectus, August 2016. Note: *Yield is per player per month.

Managing the earn-out period

The three businesses will remain separate during the earn-out period, although some cost and revenue synergies will still flow from the group’s greater scale and cross-fertilisation of best practice. In particular, we believe that marketing towards customers who leave the Tarco or 8Ball brands is likely to direct them towards Stride’s own brands on its proprietary platforms, where margins are higher. While the deferred consideration provides a strong carrot, we also believe there are sensible measures in place to ensure, for example, that marketing and other costs are positioned to deliver ambitious medium-term profit goals rather than short-term earn-out targets.

Growing share in the UK online bingo market

In addition to the jump in market share from the Tarco and 8Ball acquisitions, we believe that Stride is growing is share organically. Stride’s trading update (19 September) reports that it expects its FY16 NGR to be “not less than £47m”. That implies FY16 growth in its RMG online bingo revenues of 31% on our estimates (with a near identical growth rate in both H1 and H2). By way of comparison industry leader Jackpot Joy (Intertain) has reported growth of 9% (H116); Gala Bingo 15% (six months to 9 April 2016) and 7% (Q3FY16), and Mecca (Rank Group) -2% (six months to June 2016). Mecca has been impacted by a platform transition as we believe has Sun Bingo (estimated 12% market share down from 14-15% in 2104).

We had previously forecast 12% growth in Stride’s RMG revenues for FY17 (Update report dated 23 May). However, we now expect it to achieve 20%, only partly due to the revenue synergies from 8Ball and Tarco and 8Ball which will flow much more strongly once their earn-out periods are completed (August 2017 and December 2017 respectively).

Update to forecasts

Exhibit 5 shows our updated forecasts, including Tarco and 8Ball which were acquired on the last day of FY16 and thus begin to contribute in FY17. Exhibit 6 shows the changes to our forecasts from those published in our Update report dated 23 May.

Stride has reported that it expects its FY16 results to be ahead of market expectations with NGR “not less than £47m” and adjusted EBITDA “not less than £12.3m” (Edison previous forecasts £44.7m and £11.8m respectively). This implies H216 EBITDA of c £6.7m versus £5.6m in H116 despite the fact that H2 would normally be seasonally weaker. Compared with H215, H216e EBITDA shows growth of 81%, but this includes a full six months of the InfiApps social gaming business versus only two weeks in H215. Our forecast FY16 normalised EPS of 19.6p is 11% above our previous estimate as we have slightly trimmed our interest and tax forecasts.

Exhibit 5: Half-yearly results and estimates

Year end 31 August (£m)

H115

H115P*

H215

FY15

H116

H216e

FY16e

FY17e

FY18e

Stride RMG

11.7

11.7

14.9

26.7

15.4

19.6

35.0

42.0

52.0

Tarco/8Ball RMG

 

 

33.4

36.0

Social gaming (InfiApps)

N/A

6.2

1.1

1.1

6.2

6.0

12.2

13.4

15.0

Net gaming revenue (NGR)

11.7

17.9

16.1

27.8

21.6

25.6

47.2

88.8

103.0

COS (POC gaming tax)

(0.8)

(1.7)

(1.9)

(2.8)

(2.3)

(2.8)

(5.1)

(10.9)

(16.7)

% of RMG NGR

7%

14%

13%

10%

15%

14%

15%

15%

19%

Gross profit

10.9

16.2

14.1

25.1

19.3

22.8

42.1

77.9

86.3

Distribution cost

(4.2)

(6.9)

(5.7)

(9.9)

(8.7)

(10.2)

(18.9)

(39.1)

(45.3)

Distribution %

35.7%

38.4%

35.5%

35.6%

40.3%

39.7%

40.0%

44.0%

44.0%

Admin cost

(3.1)

(5.0)

(4.7)

(7.8)

(5.0)

(6.0)

(11.0)

(19.3)

(20.0)

Admin %

26.7%

27.8%

29.3%

28.2%

23.1%

23.3%

23.2%

21.7%

19.4%

Adj EBITDA

3.6

4.3

3.7

7.3

5.6

6.7

12.3

19.5

21.0

Adj EBITDA margin

30.6%

24.3%

23.2%

26.3%

26.0%

26.1%

26.0%

22.0%

20.4%

Source: Stride Gaming, Edison Investment Research. Note: *H115P is a like-for-like comparison with H116 as if the InfiApps acquisition (July 2015) and POC gaming tax (December 2014) had both been in place since the start of the period.

As noted above, we now expect 20% growth in Stride’s RMG revenues (previously 12%) in FY17. To this we add £33.4m from Tarco and 8Ball. Our total revenue forecast is £88.8m (last published £49.8m). Our new EBITDA forecast is £19.5m, up from £13.4m last published. For the purposes of the earn-out calculations we assume that most of the increase comes from Tarco and 8Ball – their combined EBITDA was £4.57m in the 12-months to May 2016 (Exhibit 3). In practice it is more meaningful to look at the group as a whole since the operations will essentially be integrated. We allow for the estimated distribution % to rise from 40% in FY16e to 44% in FY17e (higher marketing and Tarco and 8Ball platform fees) but a lower admin percentage (spread across a bigger group) to give EBITDA of £19.5m, a 22% margin (possibly slightly cautious since the pro forma group’s combined margin for the 12 months to May 2016 was 23%, Exhibit 3). Allowing for a slightly increased tax charge (c 7%) and increased weighted diluted share capital, our FY17 EPS rises by 14% to 22.5p. Our diluted shares calculation includes an estimated 3.9m new shares for the Tarco/8Ball earn-outs although these will only be issued in FY18.

We have not previously introduced formal FY18 estimates, but we published preliminary revenue and EBITDA estimates in our Update report dated 23 May. This flagged that we expected rather flat EBITDA in FY18, at about £13.5m (versus £13.4m in FY16e pre-deals) due to the extension of RGD (the UK POCT or remote gaming duty) to free bets, although HMRC is only now consulting on the precise method of calculation. With acquisition synergies coming through in FY18, we now expect an increase in EBITDA to £21.0m, although this still implies a lower margin (20.4% versus 22% in FY17e) as our assumed effective POCT rate increases to 19% (from 15%).

Exhibit 6: Changes to forecasts

EBITDA* (£m)

PBT* (£m)

EPS* (diluted) (p)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

FY16

11.8

12.3

+4

10.7

11.2

+5

17.7

19.6

+11

FY17e

13.4

19.5

+46

11.9

18.3

+54

19.8

22.5

+14

FY18e

13.5

21.0

+57

N/A

19.6

N/A

N/A

23.6

N/A

Source: Edison Investment Research. Note: *Normalised.

Cash flow

We previously forecast £0.9m of net cash at 31 August (excluding player balances). Stride received the £25.1m net proceeds of the share placing (12.0m new shares at 225p) on 24 August and settled the £21.8m cash component of the acquisition consideration on 31 August. Allowing for some acquisition costs we now forecast c £4.0m net cash at 31 August. Stride’s high level of cash conversion should flow through to rising net cash over the next two years and we forecast August 2017 net cash of £15.5m (previous forecast £7.0m). We have modelled £18.4m of contingent consideration payments (46% cash, 52% shares) versus the maximum £40m; higher payouts would only be triggered by higher EBITDA contributions than we have forecast. These are paid in FY18 but we still expect August 2018 net cash to rise to c £22m, in the absence of further likely acquisitions.

Our net cash is stated after an £8.0m loan from one of Stride’s shareholders (Poppy Investments), which carries a 7.5% interest rate, repayable on 30 July 2017. Stride is now in discussions with a first tier bank for a new four-year term facility, which we assume would bear a c 4% rate.

Valuation

Exhibit 7 shows Stride’s rating on a calendarised basis versus the peer group. Its share price jumped from 242.5p to 272p on the trading update announcement and we have re-priced to reflect the increase. Despite this, on our upgraded forecasts its 2017 (calendarised) EV/EBITDA is still an undemanding 8.3x versus a peer group average of 8.4x and its P/E is only 11.9x versus the average of 13.2x. Stride still has a fairly short track record, but execution to date has been strong and management is highly ambitious. Assuming the Tarco and 8Ball businesses perform as we expect over the coming months, Stride’s step change in scale – and potential for further expansion within a consolidating market – should be rewarded with a premium rating.

Exhibit 7: Peer group comparison

Price

Mkt Cap

EV/EBITDA (x)

P/E (x)

 

(p)

(£m)

2016e

2017e

2018e

2016e

2017e

2018e

Stride Gaming*

272

181

12.0

8.3

7.2

13.2

11.9

10.8

32Red

132

110

9.1

7.1

5.4

14.8

10.6

8.7

888 Holdings

214

768

11.0

9.6

8.9

17.6

15.8

14.1

GVC Holdings

719

2,100

12.9

10.1

8.5

30.0

15.0

12.2

Playtech

913

2,945

10.4

9.0

8.0

15.5

13.1

11.8

Rank Group*

213

831

6.7

6.4

5.9

13.3

12.6

11.9

Average

10.3

8.4

7.3

14.9

13.2

11.6

Source: Bloomberg, Edison Investment Research. Note: *Calendarised. **Average excludes highlighted outlier. Share prices at 19 September.

Exhibit 8: Financial summary

£m

2014

2015

2016e

2017e

2018e

August

UK GAAP

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

8.5

27.8

47.2

88.8

103.0

Cost of Sales

0.0

(2.8)

(5.1)

(10.9)

(16.7)

Gross Profit

8.5

25.1

42.1

77.9

86.3

EBITDA

 

 

1.2

7.3

12.3

19.5

21.0

Operating Profit (norm)

 

 

1.2

7.3

11.9

18.7

20.0

Amortisation of acquired intangibles

(0.3)

(2.5)

(3.0)

(3.0)

(2.5)

Exceptionals

(0.1)

(3.3)

(5.1)

(5.0)

0.0

Share based payments

0.0

(1.0)

(1.5)

0.0

0.0

Operating Profit

0.8

0.4

2.3

10.7

17.5

Net Interest

0.0

(0.1)

(0.7)

(0.4)

(0.4)

Profit Before Tax (norm)

 

 

1.2

7.2

11.2

18.3

19.6

Profit Before Tax (FRS 3)

 

 

0.8

0.4

1.6

10.3

17.1

Tax (reported)

0.0

0.1

(0.7)

(1.3)

(1.7)

Profit After Tax (norm)

1.2

6.2

10.5

17.0

17.9

Profit After Tax (FRS 3)

0.8

0.4

0.9

9.0

15.4

Average Number of Shares Outstanding (m)

31.2

43.8

51.2

67.0

70.0

EPS - normalised (p)

 

 

0.0

14.2

20.6

25.3

25.6

EPS - normalised fully diluted (p)

 

 

4.0

14.0

19.6

22.5

23.6

EPS - (IFRS) (p)

 

 

0.0

0.9

1.8

13.4

22.0

Dividend per share (p)

0.00

0.00

2.40

2.70

2.90

Gross Margin (%)

100.0

90.1

89.2

87.7

83.8

EBITDA Margin (%)

14.6

26.3

26.0

22.0

20.4

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

14.6

26.1

25.2

21.0

19.4

BALANCE SHEET

Fixed Assets

 

 

0.1

37.1

68.0

69.9

71.9

Intangible Assets

0.0

36.4

67.1

69.0

71.0

Tangible Assets

0.0

0.2

0.3

0.4

0.4

Investments

0.1

0.5

0.6

0.5

0.5

Current Assets

 

 

5.7

11.7

19.3

31.7

39.0

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

5.7

4.2

5.8

6.4

7.0

Cash

0.0

7.4

13.5

25.3

32.0

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(1.2)

(7.7)

(14.5)

(18.4)

(17.0)

Creditors

(0.8)

(5.2)

(13.0)

(16.6)

(15.0)

Player balances

(0.4)

(1.4)

(1.5)

(1.8)

(2.0)

Short term borrowings

0.0

(1.1)

0.0

0.0

0.0

Long Term Liabilities

 

 

0.0

(10.2)

(17.1)

(15.5)

(10.5)

Long term borrowings

0.0

(8.0)

(8.0)

(8.0)

(8.0)

Other long term liabilities

0.0

(2.2)

(9.1)

(7.5)

(2.5)

Net Assets

 

 

4.6

30.8

55.7

67.7

83.4

CASH FLOW

Operating Cash Flow

 

 

0.0

4.6

8.1

18.5

20.0

Net Interest

0.0

0.0

(0.6)

(0.4)

(0.3)

Tax

0.0

(0.1)

(0.7)

(0.9)

(1.2)

Capex

0.0

(0.6)

(1.2)

(1.8)

(2.0)

Acquisitions/disposals

0.0

(18.1)

(22.9)

(2.0)

(8.4)

Financing

0.0

10.4

25.1

0.0

0.0

Dividends

0.0

(3.0)

(0.6)

(1.8)

(2.0)

Net Cash Flow

0.0

(6.6)

7.2

11.6

6.2

Opening net debt/(cash)

 

 

0.0

0.0

3.1

(4.0)

(15.5)

Moving in player balances

0.0

1.0

0.0

0.0

0.0

Other adjustments

0.0

2.5

(0.1)

(0.1)

0.4

Closing net debt/(cash)

 

 

0.0

3.1

(4.0)

(15.5)

(22.0)

Source: Edison Investment Research, Stride Gaming. Note: Net debt/(cash) excludes player balances.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Stride Gaming and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Stride Gaming and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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