Raising FY19 forecasts by c 3%

JPJ Group plc 13 August 2019 Update
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JPJ Group plc

Raising FY19 forecasts by c 3%

H119 results

Travel & leisure

13 August 2019

Price

657p

Market cap

£489m

Estimated pro-forma adjusted net debt (£m) at June 2019

519

Shares in issue

74.5m

Free float

95%

Code

JPJ

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.1)

(2.8)

(35.8)

Rel (local)

1.6

(2.6)

(31.6)

52-week high/low

1014p

590p

Business description

JPJ Group is a leading online gaming operator mainly focused on bingo-led gaming. It has announced the £490m acquisition of Gamesys Group and completion is expected in Q319. The enlarged group will be renamed Gamesys Group.

Next events

Gamesys acquisition completion

Q319

Analysts

Victoria Pease

+44 (0)20 3077 5740

Richard Williamson

+44 (0)20 3077 5700

JPJ Group plc is a research client of Edison Investment Research Limited

JPJ’s standalone H119 revenues increased by 14% to £169.5m, with an adjusted EBITDA of £54.0m. Including Gamesys, pro-forma H119 revenues were £265.6m. This was above our expectations due to another exceptional performance in the Vera&John division, which grew revenues by 58%. As expected, the UK (both JPJ and Gamesys) and Sweden continue to suffer the impact of rising taxes and restrictive regulations. The Gamesys acquisition is due for completion in Q319 and we raise our FY19 pro-forma forecasts by c 3%. Our FY20 and FY21 forecasts remain broadly unchanged. JPJ trades at 7.0x EV/EBITDA and 5.6x P/E for FY20, at the low end of the peer group.

Year end

Revenue (£m)

EBITDA
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

304.7

108.6

103.9

0.0

6.3

N/A

12/18

319.6

112.7

118.5

0.0

5.5

N/A

12/19e**

535.0

153.8

93.8

0.0

7.0

N/A

12/20e**

563.8

175.4

118.0

30.0

5.6

4.6

Note: *EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro-forma figures with 33.7m additional shares used in EPS.

Stand out performance from Vera&John

JPJ reported a 14% increase in standalone H119 revenues to £169.5m with an EBITDA of £54.0m. This was above our forecasts, due to an exceptional 58% revenue growth in Vera&John (42% of standalone revenues). During H119, international revenues comprised 53% of JPJ’s standalone revenues. As a result of higher than expected Vera&John growth, we are raising our standalone JPJ forecasts by c 5% and our pro-forma FY19 forecasts by c 3% (pro-forma includes a full year of Gamesys). Our FY20 and FY21 figures remain broadly unchanged and although we believe there could be upside to our international forecasts, we note that grey markets (particularly Japan) are far more lumpy and volatile.

UK trading in line; Gamesys completion in Q319

As expected, the Jackpotjoy division (mostly UK) declined by 6% in H119, largely due to enhanced responsible gambling measures and the impact of rising gaming taxes. As discussed previously, management continues to expect the negative impact of regulation to be lapped in H219 and we leave our UK forecasts broadly unchanged. Gamesys reported an 8% increase in revenues to £96.1m for H119, with an EBITDA margin of 30.8%, which is in line with our forecasts. Completion of the acquisition is expected in Q319 – please see our June 2019 update.

Valuation: 5.6x P/E for FY20e

At H119, adjusted net debt was £269.9m, which equates to 2.5x net debt/EBITDA. Including the Gamesys acquisition, pro-forma net debt would be £519.1m and we forecast 3.0x net debt/ EBITDA for FY19 and 2.0x at FY20 for the enlarged group. Based on our pro-forma forecasts, JPJ trades at 7.0x EV/EBITDA and 5.6x P/E for FY20. 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

December

PROFIT & LOSS

Revenue

 

 

304.7

319.6

535.0

563.8

609.0

Cost of Sales

(147.5)

(158.9)

(294.6)

(299.0)

(312.8)

Gross Profit

157.2

160.7

240.4

264.8

296.1

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)

(20.6)

(3.0)

(3.0)

Share based payments

(1.4)

(0.6)

(0.6)

(0.6)

(0.6)

Operating Profit

(60.8)

35.0

71.5

110.3

134.0

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

43.0

89.8

119.5

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

31.7

75.6

102.3

Average Number of Shares Outstanding (m)

73.9

74.2

108.2

108.2

108.2

EPS

104.9

119.5

93.8

118.0

142.7

EPS - normalised (p)

 

 

103.9

118.5

93.8

118.0

142.7

EPS - (IFRS) (p)

(90.0)

19.5

29.3

69.9

94.6

Dividend per share (p)

0.0

0.0

0.0

30.0

45.0

Gross Margin (%)

51.6

50.3

44.9

47.0

48.6

EBITDA Margin (%)

35.6

35.3

28.7

31.1

32.9

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

35.5

35.1

26.7

29.1

30.8

BALANCE SHEET

Fixed Assets

 

 

595.9

521.9

801.0

757.5

715.0

Intangible Assets

589.0

514.7

781.0

740.0

700.0

Tangible Assets

1.3

2.2

10.0

7.5

5.0

Other long term assets

5.6

5.0

10.0

10.0

10.0

Current Assets

 

 

93.2

124.0

165.8

177.0

169.3

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors (incl swaps)

26.0

30.5

57.0

62.0

67.0

Cash

59.0

84.4

86.8

92.0

78.3

Player balances

8.2

9.0

22.0

23.0

24.0

Current Liabilities

 

 

(98.5)

(52.3)

(100.0)

(95.0)

(90.0)

Creditors

(46.3)

(47.8)

(100.0)

(95.0)

(90.0)

Short term borrowings

(0.3)

0.0

0.0

0.0

0.0

Contingent consideration

(51.9)

(4.5)

0.0

0.0

0.0

Long Term Liabilities

 

 

(386.7)

(374.5)

(566.5)

(466.5)

(366.5)

Long term borrowings

(369.5)

(371.5)

(546.5)

(446.5)

(346.5)

Contingent consideration

(7.7)

0.0

0.0

0.0

0.0

Other long term liabilities

(9.4)

(3.0)

(20.0)

(20.0)

(20.0)

Net Assets

 

 

204.1

219.1

300.4

373.1

427.8

CASH FLOW

Operating Cash Flow

 

 

102.0

106.8

92.5

159.4

184.1

Net Interest

(30.9)

(19.5)

(25.0)

(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 earn-outs)

(94.2)

(55.3)

(462.0)

0.0

0.0

Financing

22.2

(2.3)

240.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

(44.6)

Net Cash Flow

(5.2)

23.6

(172.5)

105.2

86.3

Opening net debt/(cash)

 

 

305.6

310.7

287.1

459.6

354.4

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

459.6

354.4

268.1

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

459.6

354.4

268.1

Source: JPJ Holdings, Edison estimates. Note *Pro-forma figures with 33.7m additional shares used in EPS


General disclaimer and copyright

This report has been commissioned by JPJ Group plc and prepared and issued by Edison, in consideration of a fee payable by JPJ Group plc. 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 JPJ Group plc and prepared and issued by Edison, in consideration of a fee payable by JPJ Group plc. 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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