Strong gaming business continues

Bragg Gaming Group 19 March 2020 Update
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Bragg Gaming Group

Strong gaming business continues

Trading update

Technology

19 March 2020

Price

C$0.17

Market cap

C$14m

€0.62/C$

Estimated adjusted net debt (C$m) at end December 2019

45.2

Shares in issue

80m

Free float

60%

Code

BRAG

Primary exchange

TSX.V

Secondary exchange

OTC.QX

Share price performance

%

1m

3m

12m

Abs

(22.7)

(29.2)

(71.7)

Rel (local)

17.7

2.9

(60.7)

52-week high/low

C$0.61

C$0.17

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 negotiation for a possible sale.

Next events

FY19 results

April 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

Bragg Gaming Group has reported preliminary FY19 adjusted EBITDA of €1.4m (C$2.0m), with guidance of €5.5m (C$7.9m) for FY20, which, respectively, are 33% and 125% higher than our previous estimates. The earnout payment for the Oryx business commensurately increases by C$12m to c C$44m (our estimate) and Bragg is currently renegotiating the terms of this contingent consideration. Bragg’s core business is e-gaming (not sports), which should be relatively unaffected by COVID-19. We have raised our EBITDA estimates to align with the new guidance and we will translate our full forecasts into euros after FY19 results in April.

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

37.1

2.0

(0.02)

0.0

N/A

N/A

12/20e

50.3

7.9

0.05

0.0

3.4

N/A

12/21e

59.6

9.5

0.04

0.0

4.3

N/A

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

Core Oryx business unaffected by COVID-19

Bragg has announced preliminary FY19 revenue of €26m (C$37.1m), which represents pro forma growth of 37% (vs our C$39.4m estimate). Adjusted EBITDA of €1.4m (C$2.0m) was higher than our C$1.5m estimate and FY20 guidance of €5.5m (C$7.9m) is significantly stronger than our previous C$3.5m estimate. In our view, these figures are not at risk from COVID-19 since Oryx has little exposure to sports. We have adjusted our forecasts to include this guidance and our FY20 EBITDA margin is now 15.6% vs 7.1% previously, as the business is showing signs of reaching industry standard EBITDA margins earlier than expected. FY20 revenue guidance (C$50–54m) compares to our previous estimate of C$48.6m.

Earnout payment and GMS sale negotiations

Given the stronger EBITDA delivered by Oryx, the earnout payment to the Oryx vendor now increases by approximately C$12m to C$44m, of which C$16.8m is payable in mid-2020 (our estimate). This contributes to an estimated adjusted net debt of C$45.2m at end FY19. Bragg has stated that it is in negotiations to restructure the original terms of this payment, potentially accelerating the entire earnout or adapting the current payment terms, and we expect further clarity in due course. Negotiations for the sale of GMS are underway although we expect this could be delayed by COVID-19.

Valuation: 7.4x EV/EBITDA for FY20e

Bragg Gaming has a limited reporting history and has yet to generate positive net cash. However, the core Oryx business is growing very strongly and the guidance for FY20 group EBITDA is encouraging. The stock trades at 7.4x EV/EBITDA and 3.4x P/E for FY20e. Catalysts for the share price include the sale of GMS (there are no proceeds in our current forecasts), as well as the successful renegotiation of the Oryx earnout (we note that this is critical given the limited cash flow).

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

37,128.0

50,329.0

59,562.3

65,060.6

Cost of Sales

(6,123.2)

(19,348.4)

(25,164.5)

(30,972.4)

(33,831.5)

Gross Profit

6,102.9

17,779.6

25,164.5

28,589.9

31,229.1

EBITDA

 

 

(3,333.1)

2,008.5

7,854.0

9,503.7

10,713.3

Normalised operating profit

 

 

(3,385.6)

1,589.2

7,427.9

9,070.7

10,273.3

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)

(8,000.0)

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)

(11,033.5)

3,305.2

4,948.0

6,150.6

Net Interest

(249.4)

(3,047.2)

(1,458.3)

(1,303.1)

(1,581.8)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(3,635.0)

(1,458.0)

5,969.6

7,767.6

8,691.5

Profit Before Tax (reported)

 

 

(35,590.3)

(14,080.8)

1,846.9

3,644.9

4,568.7

Reported tax

(3.1)

(234.3)

(477.6)

(621.4)

(695.3)

Profit After Tax (norm)

(3,635.4)

(1,341.4)

5,492.1

7,146.2

7,996.2

Profit After Tax (reported)

(35,593.4)

(14,315.1)

1,369.3

3,023.5

3,873.4

Minority interests

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

(2,380.0)

938.2

0.0

0.0

Net income (normalised)

(3,635.4)

(1,341.4)

5,492.1

7,146.2

7,997.2

Net income (reported)

(35,593.4)

(16,695.1)

2,307.5

3,023.5

3,873.4

Basic average number of shares outstanding (m)

78

79

105

173

214

EPS - basic normalised ($)

 

 

(0.05)

(0.02)

0.05

0.04

0.04

EPS - diluted normalised ($)

 

 

(0.05)

(0.02)

0.05

0.04

0.04

EPS - basic reported ($)

 

 

(0.46)

(0.21)

0.02

0.02

0.02

Dividend ($)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

14.2

203.7

35.6

18.3

9.2

Gross Margin (%)

49.9

47.9

50.0

48.0

48.0

EBITDA Margin (%)

-27.3

5.4

15.6

16.0

16.5

Normalised Operating Margin

-27.7

4.3

14.8

15.2

15.8

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

8,760.4

12,198.4

14,297.4

17,253.4

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

6,414.8

7,914.8

8,414.8

8,914.8

9,414.8

Cash & cash equivalents

8,571.7

387.0

3,345.0

4,964.0

7,440.0

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)

(26,696.0)

(36,978.0)

(8,934.0)

(8,434.0)

Creditors

(12,453.1)

(9,500.0)

(9,000.0)

(8,500.0)

(8,000.0)

Deferred and contingent consideration

(3,038.0)

(16,762.0)

(27,544.0)

0.0

0.0

Short term borrowings

(151.0)

(284.0)

(284.0)

(284.0)

(284.0)

Other

(190.1)

(150.0)

(150.0)

(150.0)

(150.0)

Long Term Liabilities

 

 

(30,113.1)

(31,148.7)

(10,005.7)

(19,797.7)

(15,817.7)

Long term borrowings

(434.2)

(1,021.0)

(7,422.0)

(17,214.0)

(13,234.0)

Contingent Consideration

(27,095.2)

(27,544.0)

0.0

0.0

0.0

Other long term liabilities

(29,678.9)

(30,127.7)

(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

6,286.2

19,374.6

37,569.9

42,843.1

Shareholders' equity

 

 

24,867.5

6,286.2

19,374.6

37,569.9

42,843.1

CASH FLOW

Op Cash Flow before WC and tax

(2,969.4)

2,008.5

7,854.0

9,503.7

10,713.3

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)

(477.6)

(621.4)

(695.3)

Net operating cash flow

 

 

(723.6)

(2,728.9)

6,376.4

7,882.3

9,018.0

Capex

(223.7)

(2,500.0)

(1,000.0)

(1,000.0)

(1,000.0)

Acquisitions/disposals

(5,772.2)

(1,755.0)

(16,762.0)

(27,544.0)

0.0

Net interest

(248.6)

(27.2)

(438.3)

(1,283.1)

(1,561.8)

Equity financing

12,839.0

800.0

8,381.0

13,772.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.0

(1,735.4)

0.0

0.0

0.0

Net Cash Flow

5,870.8

(7,946.6)

(3,442.9)

(8,172.8)

6,456.2

Opening net debt/(cash)

 

 

(2,368.5)

(7,986.4)

917.6

4,360.5

12,533.3

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)

917.6

4,360.5

12,533.3

6,077.2

Adjusted net debt/(cash)

22,146.7

45,223.6

31,904.5

12,533.3

6,077.2

Source: Bragg Gaming 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).

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).

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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