Bragg Gaming Group |
German regulation looks positive (at last) |
German regulation |
Technology |
23 January 2020 |
Share price performance
Business description
Next events
Analysts
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 |
EPS* |
DPS |
P/E |
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
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