Growth through responsible gaming

Gamesys Group 23 April 2020 Update
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Gamesys Group

Growth through responsible gaming

Trading update

Travel & leisure

23 April 2020

Price

800p

Market cap

£869m

Adjusted net debt (£m) at 31 December 2019

450.3

Shares in issue

108.7m

Free float

74%

Code

GYS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.3

11.1

18.0

Rel (local)

3.9

47.3

51.8

52-week high/low

836p

531p

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

Q120 results

May 2020

Analysts

Victoria Pease

+44 (0)20 3077 5740

Russell Pointon

+44 (0)20 3077 5700

Gamesys Group is a research client of Edison Investment Research Limited

In a continuation of previous trends, Gamesys has reported a 19% increase in Q120 pro-forma revenues to £155.3m. The business has no retail or sport exposure and the first few weeks of Q220 have been strong. Geographically, Asian markets are driving growth and the UK has been solid. During the COVID-19 lockdown period, Gamesys is proactively instigating responsible gaming measures, which include ceasing all TV advertising, and the company is donating £200,000 to Women’s Aid. The stock trades at 6.2x P/E and 6.7x EV/EBITDA with an estimated 13.1% free cash flow yield for FY21.

Year end

Revenue (£m)

EBITDA
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

319.6

112.7

118.5

0.0

6.7

N/A

12/19**

565.3

158.9

100.4

0.0

8.0

N/A

12/20e**

601.7

175.8

110.8

30.0

7.2

3.8

12/21e**

640.0

196.0

130.0

40.5

6.2

5.1

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

Strong trading in Q120 and into Q220

Q120 pro-forma revenues increased by 19% to £155.3m, driven by continuing strength in Asian markets. The UK and European performance was solid, with the exception of Sweden, which remains a very competitive market. The group is highly cash generative and we are forecasting significant deleverage going forward, from a ratio of 2.8x net debt/EBITDA at FY19 to 2.0x in FY20 and 1.4x in FY21. We expect cash returns to shareholders from FY20 onwards. Trading into Q220 has been strong, but our forecasts remain unchanged at this early stage of the year.

Emphasising responsible gaming

Gamesys has proactively instigated a number of responsible gaming measures, during the COVID-19 related lockdown (including enhanced human and automated checks) and, to reinforce its community based entertainment, Gamesys has provided 10 hours of free bingo every day (where allowed). Furthermore, it has suspended untargeted customer marketing and ceased all TV and radio advertising in the UK until current social restrictions are eased. Gamesys will also temporarily remove all Jackpotjoy branding around the sponsorship of ITV’s popular ‘Loose Women’ TV show, making the sponsorship opportunity available for Women’s Aid. Gamesys has also donated £200,000 to Women’s Aid, to enhance the charity’s chat capacity.

Valuation: 13.1% free cash flow yield for FY21e

For FY21e, the stock trades at 6.2x P/E and 6.7x EV/EBITDA, with a 13.1% free cash flow yield (including interest payments) and a dividend yield of 5.1%. Operationally, the business has no meaningful exposure to sports (and hence sports cancellations) and its online e-gaming business should be relatively secure despite the coronavirus pandemic.

Exhibit 1: Financial summary

£m

2017

2018

2019*

2020e*

2021e*

2022e*

Year end 31 December

PROFIT & LOSS

Revenue

 

 

304.7

319.6

565.3

601.7

640.0

681.4

Cost of Sales

(147.5)

(158.9)

(287.9)

(310.9)

(322.4)

(344.5)

Gross Profit

157.2

160.7

277.4

290.8

317.7

336.9

EBITDA

 

 

108.6

112.7

158.9

175.8

196.0

207.4

Operating Profit (before amort. and except.)

 

 

108.2

112.2

140.9

157.8

178.0

189.4

Intangible Amortisation

(62.6)

(60.3)

(52.7)

(52.7)

(52.7)

(52.7)

Exceptional and other items

(104.9)

(16.3)

(23.4)

0.0

0.0

0.0

Share based payments

(1.4)

(0.6)

(0.5)

(0.5)

(0.5)

(0.5)

Operating Profit

(60.8)

35.0

64.3

104.6

124.8

136.2

Net Interest

(30.0)

(19.5)

(21.4)

(24.0)

(21.0)

(19.0)

Profit Before Tax (norm)

 

 

78.2

92.7

119.5

133.8

157.0

170.4

Profit Before Tax (FRS 3)

 

 

(65.8)

18.5

44.2

80.6

103.8

117.2

Tax

(0.7)

(0.5)

(2.9)

(13.4)

(15.7)

(17.0)

Profit After Tax (norm)

77.5

92.3

116.5

120.4

141.3

153.4

Profit After Tax (FRS 3)

(66.5)

18.1

41.3

67.3

88.1

100.2

Average Number of Shares Outstanding (m)

73.9

74.2

108.7

108.7

108.7

108.7

EPS (p)

104.9

119.5

100.4

110.8

130.0

141.1

EPS - normalised (p)

 

 

103.9

118.5

100.4

110.8

130.0

141.1

EPS - (IFRS) (p)

(90.0)

19.5

31.2

61.9

81.1

92.2

Dividend per share (p)

0.0

0.0

0.0

30.0

40.5

46.1

Gross Margin (%)

51.6

50.3

49.1

48.3

49.6

49.4

EBITDA Margin (%)

35.6

35.3

28.1

29.2

30.6

30.4

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

35.5

35.1

24.9

26.2

27.8

27.8

BALANCE SHEET

Fixed Assets

 

 

595.9

521.9

1,045.6

992.9

942.2

891.5

Intangible Assets

589.0

514.7

1,008.7

965.0

922.3

879.6

Tangible Assets

1.3

2.2

31.7

22.6

14.6

6.6

Other long term assets

5.6

5.0

5.2

5.2

5.2

5.2

Current Assets

 

 

93.2

124.0

165.9

217.3

244.0

269.8

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

Debtors (incl swaps)

26.0

30.5

53.2

58.2

63.2

68.2

Cash

59.0

84.4

100.3

145.7

166.4

186.2

Player balances

8.2

9.0

12.4

13.4

14.4

15.4

Current Liabilities

 

 

(98.5)

(52.3)

(122.6)

(117.6)

(112.6)

(107.6)

Creditors

(46.3)

(47.8)

(117.9)

(112.9)

(107.9)

(102.9)

Short term borrowings

(0.3)

0.0

(4.7)

(4.7)

(4.7)

(4.7)

Contingent consideration

(51.9)

(4.5)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(386.7)

(374.5)

(624.2)

(574.2)

(524.2)

(474.2)

Long term borrowings

(369.5)

(371.5)

(545.8)

(495.8)

(445.8)

(395.8)

Contingent consideration

(7.7)

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(9.4)

(3.0)

(78.3)

(78.3)

(78.3)

(78.3)

Net Assets

 

 

204.1

219.1

464.7

518.4

549.4

579.5

CASH FLOW

Operating Cash Flow

 

 

102.0

106.8

100.8

150.8

171.0

182.4

Net Interest

(30.9)

(19.5)

(22.7)

(24.0)

(21.0)

(19.0)

Tax

(1.0)

(0.8)

(3.0)

(13.4)

(15.7)

(17.0)

Capex

(3.2)

(5.3)

(16.7)

(18.0)

(20.0)

(20.0)

Acquisitions (inc earn-outs)

(94.2)

(55.3)

(462.0)

0.0

0.0

0.0

Financing

22.2

(2.3)

240.5

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

(43.6)

(56.6)

Net Cash Flow

(5.2)

23.6

(163.2)

95.5

70.7

69.8

Opening net debt/(cash)

 

 

305.6

310.7

287.1

450.3

354.8

284.1

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

310.7

287.1

450.3

354.8

284.1

214.3

NPV of outstanding earnouts/other

 

 

76.6

15.0

0.0

0.0

0.0

0.0

Currency swaps

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Adjusted net debt

 

 

387.3

302.1

450.3

354.8

284.0

214.2

Source: Gamesys Group accounts, 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 2020 Edison Investment Research Limited (Edison).

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

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 2020 Edison Investment Research Limited (Edison).

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

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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