Growth across the enlarged group

Gamesys Group 13 November 2019 Update
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Gamesys Group

Growth across the enlarged group

Q319 results

Travel & leisure

13 November 2019

Price

705p

Market cap

£764m

Adjusted net debt (£m) at September 2019

484.7

Shares in issue

108.4m

Free float

74%

Code

GYS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.9)

3.9

16.8

Rel (local)

(12.0)

1.9

12.7

52-week high/low

808p

590p

Business description

Gamesys is a leading online gaming operator, with two-thirds of revenues from the UK. The group was formed after JPJ Group acquired Gamesys for £490m in September 2019.

Next events

FY19 results

March 2020

Analysts

Victoria Pease

+44 (0)20 3077 5740

Richard Williamson

+44 (0)20 3077 5700

Gamesys Group is a research client of Edison Investment Research Limited

Gamesys’ pro forma Q319 revenues increased by 20% to £144.3m due to 57% growth in Vera&John (international markets), strong momentum in the acquired Gamesys business and, encouragingly, a return to growth in the Jackpotjoy UK brand. The EBITDA margin declined 680bp to 26.7% as a result of higher taxes and marketing spend. We are raising our FY19 revenues estimate by 2.3% but keeping our EBITDA forecasts unchanged. We continue to forecast net cash flow of £105m in FY20 and our net debt/EBITDA falls from 3.0x currently to 2.0x at end FY20. The stock trades at 6.0x P/E and 7.1x EV/EBITDA, with a 13.8% FCF yield for FY20e.

Year end

Revenue (£m)

EBITDA
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

304.7

108.6

103.9

0.0

6.8

N/A

12/18

319.6

112.7

118.5

0.0

5.9

N/A

12/19e**

547.4

153.8

93.7

0.0

7.5

N/A

12/20e**

578.4

175.4

117.8

30.0

6.0

4.3

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

Maiden group results: Vera&John up 57%

Gamesys’ pro forma Q319 revenues increased by 20% to £144.3m, driven by 57% growth in Vera&John, which includes £22.7m revenues from Japan (15.7% of group revenues). Encouragingly, JPJ UK has returned to growth after annualising difficult comps and the Gamesys brands are also performing well. As previously highlighted, pro forma EBITDA of £38.6m (26.7% margin vs 33.5% last year) was affected by increased taxes (UK and Sweden), as well as higher marketing spend internationally. We are raising our FY19 revenue estimate by 2.3% but leaving our EBITDA and net profit broadly unchanged. Although we believe there could be upside to our international forecasts, we note that grey markets can be far more lumpy and volatile.

Gamesys: Doubling the Jackpotjoy revenues

The group completed the acquisition of Gamesys in September 2019 for £490m and, on a pro forma basis, for 9M19 the Gamesys division contributed £150.3m to revenues, £40m to operating profit and £24.5m to net profit. The Gamesys brands have been included within the Jackpotjoy division and will roughly double divisional revenues. We continue to forecast double-digit growth for standalone Gamesys for FY20 and FY21. Going forward, we expect the company to report geographically rather than by division.

Valuation: 6.0x P/E for FY20e

Gamesys ended the quarter with unrestricted cash of £97.9m and adjusted net debt of £484.7m, which equates to 3.0x net debt/EBITDA, which we forecast will fall to 2.0x by year-end FY20. Gamesys trades at 7.1x EV/EBITDA and 6.0x P/E for FY20e, with an attractive FCF yield of 13.8%. This remains at the lower end of the peer group and, as the company rapidly deleverages, we expect value to shift from debt to equity.

Exhibit 1: Financial summary

£m

2017

2018

2019e*

2020e*

2021e*

Year end 31 December

PROFIT & LOSS

Revenue

 

 

304.7

319.6

547.4

578.4

618.8

Cost of Sales

(147.5)

(158.9)

(305.5)

(309.6)

(323.8)

Gross Profit

157.2

160.7

241.9

268.9

295.0

EBITDA

 

 

108.6

112.7

153.8

175.4

200.1

Operating Profit (before amort. and except.)

 

 

108.2

112.2

142.8

163.9

187.6

Intangible Amortisation

(62.6)

(60.3)

(50.0)

(50.0)

(50.0)

Exceptional and other items

(104.9)

(16.3)

(18.8)

0.0

0.0

Share based payments

(1.4)

(0.6)

(0.5)

(0.5)

(0.5)

Operating Profit

(60.8)

35.0

73.5

113.4

137.1

Net Interest

(30.0)

(19.5)

(30.0)

(22.0)

(16.0)

Profit Before Tax (norm)

 

 

78.2

92.7

112.8

141.9

171.6

Profit Before Tax (FRS 3)

 

 

(65.8)

18.5

45.0

91.4

121.1

Tax

(0.7)

(0.5)

(11.3)

(14.2)

(17.2)

Profit After Tax (norm)

77.5

92.3

101.5

127.7

154.4

Profit After Tax (FRS 3)

(66.5)

18.1

33.7

77.2

103.9

Average Number of Shares Outstanding (m)

73.9

74.2

108.4

108.4

108.4

EPS (p)

104.9

119.5

93.7

117.8

142.4

EPS - normalised (p)

 

 

103.9

118.5

93.7

117.8

142.4

EPS - (IFRS) (p)

(90.0)

19.5

31.1

71.2

95.9

Dividend per share (p)

0.0

0.0

0.0

30.0

45.0

Gross Margin (%)

51.6

50.3

44.2

46.5

47.7

EBITDA Margin (%)

35.6

35.3

28.1

30.3

32.3

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

35.5

35.1

26.1

28.3

30.3

BALANCE SHEET

Fixed Assets

 

 

595.9

521.9

1,012.0

968.5

926.0

Intangible Assets

589.0

514.7

980.0

939.0

899.0

Tangible Assets

1.3

2.2

27.0

24.5

22.0

Other long-term assets

5.6

5.0

5.0

5.0

5.0

Current Assets

 

 

93.2

124.0

178.5

189.7

181.8

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors (incl swaps)

26.0

30.5

61.0

66.0

71.0

Cash

59.0

84.4

101.5

106.7

92.8

Player balances

8.2

9.0

16.0

17.0

18.0

Current Liabilities

 

 

(98.5)

(52.3)

(138.6)

(133.6)

(128.6)

Creditors

(46.3)

(47.8)

(134.0)

(129.0)

(124.0)

Short term borrowings

(0.3)

0.0

(4.6)

(4.6)

(4.6)

Contingent consideration

(51.9)

(4.5)

0.0

0.0

0.0

Long Term Liabilities

 

 

(386.7)

(374.5)

(556.4)

(456.4)

(356.4)

Long term borrowings

(369.5)

(371.5)

(555.4)

(455.4)

(355.4)

Contingent consideration

(7.7)

0.0

0.0

0.0

0.0

Other long term liabilities

(9.4)

(3.0)

(1.0)

(1.0)

(1.0)

Net Assets

 

 

204.1

219.1

495.5

568.2

622.8

CASH FLOW

Operating Cash Flow

 

 

102.0

106.8

84.6

159.4

184.1

Net Interest

(30.9)

(19.5)

(20.0)

(22.0)

(16.0)

Tax

(1.0)

(0.8)

(8.0)

(14.2)

(17.2)

Capex

(3.2)

(5.3)

(10.0)

(18.0)

(20.0)

Acquisitions (inc earnouts)

(94.2)

(55.3)

(462.0)

0.0

0.0

Financing

22.2

(2.3)

244.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

(44.7)

Net Cash Flow

(5.2)

23.6

(171.4)

105.2

86.2

Opening net debt/(cash)

 

 

305.6

310.7

287.1

458.5

353.3

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

310.7

287.1

458.5

353.3

267.1

NPV of outstanding earnouts/ other

 

 

76.6

15.0

0.0

0.0

0.0

Currency swaps

 

 

0.0

0.0

0.0

0.0

0.0

Adjusted net debt

 

 

387.3

302.1

458.5

353.3

267.1

Source: Gamesys Group, Edison Investment Research. Note: *Pro forma figures.


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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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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