German regulation looks positive (at last)

Bragg Gaming Group 23 January 2020 Update
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Bragg Gaming Group

German regulation looks positive (at last)

German regulation

Technology

23 January 2020

Price

C$0.22

Market cap

C$18m

€0.686/C$

Adjusted net debt (C$m) at 30 September 2019

32.6

Shares in issue

78m

Free float

60%

Code

BRAG

Primary exchange

TSX.V

Secondary exchange

OTC.QX

Share price performance

%

1m

3m

12m

Abs

(4.4)

(6.4)

(72.8)

Rel (local)

(7.0)

(12.8)

(76.5)

52-week high/low

C$0.78

C$0.19

Business description

Bragg Gaming Group (formerly Breaking Data Corp) is a Toronto-based B2B online gaming holding company. The core asset is Oryx Gaming, a predominantly European B2B online gaming platform. Bragg’s online sports media outlet is under strategic review, including a possible sale.

Next events

FY19 results

Est March 2020

Analysts

Victoria Pease

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Bragg Gaming Group is a research client of Edison Investment Research Limited

After years of uncertainty, all 16 German states have agreed in principle that the July 2021 Gambling Treaty will include a unified approach to allowing e-gaming (casino and poker). This follows recent news that egaming was to be banned altogether. This new development is clearly a very positive step forward for the industry. The announcement is particularly important for Bragg, which derives c 40% of revenues from German facing operators. We will update our estimates at the FY19 results, when we expect further clarity.

Year end

Revenue (C$m)

EBITDA
(C$m)

EPS*
(C$)

DPS
(C$)

P/E
(x)

Yield
(%)

12/18**

12.2

(3.3)

(0.05)

0.0

N/A

N/A

12/19e

39.4

1.5

0.01

0.0

18.5

N/A

12/20e

48.6

3.5

0.02

0.0

9.8

N/A

12/21e

55.6

5.3

0.02

0.0

9.7

N/A

Note: *EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. **FY18 results are largely from GiveMeSport (not Oryx).

Moving towards e-gaming regulation in 2021

To date, gaming regulation in Germany has been very confusing, with a high level of disagreement. As recently as December 2019, the interior minister of Hesse (the state in charge of licensing) indicated that online gaming would be prohibited as part of fulfilling the temporary betting licence obligations. Somewhat to the contrary, this new announcement has confirmed that all 16 states have agreed in principle that the permanent regime (from July 2021) would include egaming (casino and poker), not just betting as originally envisaged. This is clearly a hugely positive step forward for the e-gaming industry, although there are still doubts regarding the legality of e-gaming in the interim period (from January 2020 to June 2021).

Hugely helpful in Bragg’s main market

Bragg (through the Oryx business) operates its German operations from Schleswig-Holstein (where licences have been extended) and the ability to operate with legal certainty throughout the rest of Germany would be a huge positive for the company. During 2019, Bragg’s German revenues (c 40% of total) growth was lagging the rest of the business and we expect this announcement to contribute to confidence and momentum for its Germany facing customers. See our initiation report for further details. We note that German e-gaming is subject to a 19% VAT and we would expect this rate to be reviewed in due course. As a comparison, sports betting (not offered by Bragg) is taxed at 5% of turnover, which is equivalent to c 45% tax on gross gaming revenue.

Valuation: 9.8x FY20e P/E

Bragg Gaming has a limited reporting history and has yet to generate net profit or positive net cash. However, the core Oryx business is growing very strongly and there should be upside to our figures from the US and increased momentum in Germany. On our current forecasts, Bragg trades at 14.5x EV/EBITDA and 9.8x P/E for FY20e. We note that the potential sale of GiveMeSport could provide significant upside to our DCF valuation of C$0.36/share: every C$1m of sale proceeds would equate to C$0.013/share upside.

Exhibit 1: Financial summary

C$'000s

2018

2019e

2020e

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

12,226.1

39,422.1

48,585.6

55,575.1

60,975.9

Cost of Sales

(6,123.2)

(21,704.7)

(26,755.1)

(30,566.3)

(33,536.8)

Gross Profit

6,102.9

17,717.4

21,830.5

25,008.8

27,439.2

EBITDA

 

 

(3,333.1)

1,529.7

3,471.7

5,292.0

6,765.9

Normalised operating profit

 

 

(3,385.6)

1,110.4

3,045.7

4,859.0

6,325.9

Amortisation of acquired intangibles

(22,944.9)

(2,722.7)

(2,722.7)

(2,722.7)

(2,722.7)

One-off items inc changes in fair value of contingent/ deferred consideration

(3,882.0)

(4,250.4)

0.0

0.0

0.0

Share-based payments

(5,128.3)

(1,900.0)

(1,400.0)

(1,400.0)

(1,400.0)

Reported operating profit

(35,340.9)

(7,762.8)

(1,077.1)

736.3

2,203.1

Net Interest

(249.4)

(47.2)

(587.6)

(1,469.3)

(1,909.3)

Profit Before Tax (norm)

 

 

(3,635.0)

1,063.2

2,458.0

3,389.8

4,416.5

Profit Before Tax (reported)

 

 

(35,590.3)

(7,810.0)

(1,664.7)

(733.0)

293.8

Reported tax

(3.1)

(234.3)

(196.6)

(271.2)

(353.3)

Profit After Tax (norm)

(3,635.4)

978.1

2,261.4

3,118.6

4,063.2

Profit After Tax (reported)

(35,593.4)

(8,044.3)

(1,861.4)

(1,004.2)

(59.5)

Discontinued operations

0.0

(2,380.0)

938.2

0.0

0.0

Net income (normalised)

(3,635.4)

978.1

2,261.4

3,118.6

4,064.2

Net income (reported)

(35,593.4)

(10,424.3)

(923.2)

(1,004.2)

(59.5)

Basic average number of shares outstanding (m)

78

79

97

133

152

EPS - basic normalised (C$)

 

 

(0.05)

0.01

0.02

0.02

0.03

EPS - diluted normalised (C$)

 

 

(0.05)

0.01

0.02

0.02

0.03

EPS - basic reported (C$)

 

 

(0.46)

(0.13)

(0.01)

(0.01)

(0.00)

Dividend (C$)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

14.2

222.4

23.2

14.4

9.7

Gross Margin (%)

49.9

44.9

44.9

45.0

45.0

EBITDA Margin (%)

-27.3

3.9

7.1

9.5

11.1

Normalised Operating Margin

-27.7

2.8

6.3

8.7

10.4

BALANCE SHEET

Fixed Assets

 

 

55,367.7

56,308.7

54,159.9

52,004.2

49,841.4

Intangible Assets

55,075.2

54,317.5

52,214.7

50,112.0

48,009.2

Tangible Assets

292.5

1,991.2

1,945.2

1,892.2

1,832.2

Investments & other

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

15,445.1

8,682.4

9,929.4

12,278.4

15,301.4

Debtors

6,414.8

7,914.8

8,414.8

8,914.8

9,414.8

Cash & cash equivalents

8,571.7

309.0

1,076.0

2,945.0

5,488.0

Other

458.6

458.6

438.6

418.6

398.6

Assets classified as held for sale

0.0

1,362.8

0.0

0.0

0.0

Current Liabilities

 

 

(15,832.2)

(25,566.2)

(26,707.3)

(9,234.5)

(8,734.5)

Creditors

(12,453.1)

(9,500.0)

(9,000.0)

(8,500.0)

(8,000.0)

Deferred and contingent consideration

(3,038.0)

(15,331.7)

(16,972.8)

0.0

0.0

Short term borrowings

(151.0)

(584.5)

(584.5)

(584.5)

(584.5)

Other

(190.1)

(150.0)

(150.0)

(150.0)

(150.0)

Long Term Liabilities

 

 

(30,113.1)

(20,577.5)

(11,329.9)

(20,113.5)

(20,133.5)

Long term borrowings

(434.2)

(1,021.0)

(8,746.2)

(17,529.8)

(17,549.8)

Contingent Consideration

(27,095.2)

(16,972.8)

0.0

0.0

0.0

Other long term liabilities

(29,678.9)

(19,556.5)

(2,583.7)

(2,583.7)

(2,583.7)

Liabilities classified as held for sale

0.0

(2,301.0)

0.0

0.0

0.0

Net Assets

 

 

24,867.5

17,909.3

26,052.1

34,934.6

36,274.8

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

24,867.5

17,909.3

26,052.1

34,934.6

36,274.8

CASH FLOW

Op Cash Flow before WC and tax

(2,969.4)

1,529.7

3,471.7

5,292.0

6,765.9

Working capital

5,457.0

(4,453.1)

(1,000.0)

(1,000.0)

(1,000.0)

Exceptional & other

(3,208.2)

(50.0)

0.0

0.0

0.0

Tax

(3.1)

(234.3)

(196.6)

(271.2)

(353.3)

Net operating cash flow

 

 

(723.6)

(3,207.7)

2,275.1

4,020.8

5,412.6

Capex

(223.7)

(2,500.0)

(1,000.0)

(1,000.0)

(1,000.0)

Acquisitions/disposals

(5,772.2)

(1,755.0)

(15,331.7)

(16,972.8)

0.0

Net interest

(248.6)

(27.2)

(567.6)

(1,449.3)

(1,889.3)

Equity financing

12,839.0

800.0

7,665.8

8,486.4

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.0

(1,635.4)

0.0

0.0

0.0

Net Cash Flow

5,870.8

(8,325.4)

(6,958.4)

(6,914.8)

2,523.2

Opening net debt/(cash)

 

 

(2,368.5)

(7,986.4)

1,296.4

8,254.8

15,169.6

FX

(252.9)

(241.0)

0.0

0.0

0.0

Other non-cash movements

0.0

(716.5)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(7,986.4)

1,296.4

8,254.8

15,169.6

12,646.4

Adjusted net debt/(cash)

 

 

22,146.7

33,600.8

25,227.6

15,169.6

12,646.4

Source: Bragg Gaming Group accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Bragg Gaming Group and prepared and issued by Edison, in consideration of a fee payable by Bragg Gaming 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 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “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.

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

1,185 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

1,185 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 Bragg Gaming Group and prepared and issued by Edison, in consideration of a fee payable by Bragg Gaming 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 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “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.

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

1,185 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

1,185 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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