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Research: Consumer
Gamesys Group’s FY20 results are ahead of expectations, rounding off a year of persistent upgrades. There was strong revenue growth in most geographies driven by organic growth and new product launches. The company continues to demonstrate strong cash conversion, leading to a significant improvement in the year-end financial position, which helped to fund a better than expected final dividend. FY21 has had a ‘very good start’ but we note that comparatives become more difficult as we move into Q221 following the COVID-19 pandemic. We have increased our EBITDA forecasts for FY21 and FY22 by 1–2%. On our new forecasts, the FY21 free cash flow (FCF) yield is 10.1% and the dividend yield is 2.9%.
Gamesys Group |
Ahead of recent guidance |
FY20 results |
Travel & leisure |
9 March 2021 |
Share price performance
Business description
Next events
Analysts
Gamesys Group is a research client of Edison Investment Research Limited |
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Gamesys Group’s FY20 results are ahead of expectations, rounding off a year of persistent upgrades. There was strong revenue growth in most geographies driven by organic growth and new product launches. The company continues to demonstrate strong cash conversion, leading to a significant improvement in the year-end financial position, which helped to fund a better than expected final dividend. FY21 has had a ‘very good start’ but we note that comparatives become more difficult as we move into Q221 following the COVID-19 pandemic. We have increased our EBITDA forecasts for FY21 and FY22 by 1–2%. On our new forecasts, the FY21 free cash flow (FCF) yield is 10.1% and the dividend yield is 2.9%.
Year end |
Revenue (£m) |
EBITDA* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
565.3 |
158.9 |
100.4 |
0.0 |
14.3 |
N/A |
12/20 |
727.7 |
206.2 |
142.4 |
40.0 |
10.1 |
2.8 |
12/21e |
803.0 |
223.2 |
153.6 |
42.0 |
9.3 |
2.9 |
12/22e |
891.6 |
247.9 |
175.3 |
44.1 |
8.2 |
3.1 |
Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items.
FY20: Ahead of recent guidance
Gamesys’s FY20 results were ahead of our expectations with year-on-year pro forma revenue growth of 29% to £727.7m (versus our forecast of £724m) and EBITDA growth of 30% to £206.2m (versus our £200.8m), resulting in a 0.2% y-o-y increase in the EBITDA margin to 28.3%. Revenue growth was driven by a combination of average active players (up 21%) and spend per active player (up 6%). On a pro forma basis in descending order, geographic growth was Asia (+78%), UK (+19%), and Rest of World (+6%) due to a combination of new games launches and organic growth. Europe declined by 1% as healthy growth in the main market, Spain, helped by a new launch and despite regulatory changes, was offset by ongoing challenges in the Nordics. Strong operating cash conversion led to a significant improvement in the adjusted net leverage ratio of 1.51x, within the long-term target of 1–2x, versus 2.83x at the end of FY19. This enabled a better final dividend (28p) and total FY20 dividend of 40p, versus the prior implied guidance of 36p.
Forecast: FY21 and FY22 increase by 1–2%
Following the better than expected performance in FY20, we increase our EBITDA forecast for FY21 by 1% to £223.2m and for FY22 by 2% to £247.9m, due to an increase in revenue growth assumptions, year-on-year growth of c 10–11% in both years and a marginal increase in both years of 0.1% to 27.8%. This follows an upgrade of 4% in January 2021. We continue to assume the dividend will grow by 5% pa.
Valuation: FCF yield of 10.1% for FY21e
The shares have performed well following the upgrade to guidance in January. On our new forecasts, the EV/EBITDA multiple for FY21 is 8.3x. The FY21e dividend yield of 2.9% remains attractive given the FCF yield of 10.1% and the company’s financial position.
Exhibit 1: Financial summary
£m |
2019 |
2020 |
2021e |
2022e |
2023e |
||
Year end 31 December |
|||||||
PROFIT & LOSS |
|||||||
Revenue |
|
|
565.3 |
727.7 |
803.0 |
891.6 |
990.7 |
Cost of Sales |
(287.9) |
(399.9) |
(440.9) |
(488.6) |
(542.9) |
||
Gross Profit |
277.4 |
327.8 |
362.2 |
403.0 |
447.8 |
||
EBITDA |
|
|
158.9 |
206.2 |
223.2 |
247.9 |
275.4 |
Operating Profit (before amort. and except.) |
|
|
140.9 |
186.6 |
206.1 |
230.8 |
258.3 |
Intangible Amortisation |
(52.7) |
(82.9) |
(82.9) |
(82.9) |
(82.9) |
||
Exceptional and other items |
(20.8) |
(6.8) |
0.0 |
0.0 |
0.0 |
||
Share based payments |
(0.5) |
(3.5) |
(1.8) |
(1.8) |
(1.8) |
||
Operating Profit |
66.9 |
93.4 |
121.4 |
146.1 |
173.6 |
||
Net Interest |
(21.4) |
(23.5) |
(19.4) |
(17.1) |
(14.7) |
||
Profit Before Tax (norm) |
|
|
119.5 |
163.1 |
186.7 |
213.7 |
244.6 |
Profit Before Tax (FRS 3) |
|
|
44.2 |
68.7 |
102.0 |
129.0 |
159.9 |
Tax |
(2.9) |
(1.5) |
(18.7) |
(21.4) |
(24.4) |
||
Profit After Tax (norm) |
109.2 |
152.9 |
168.1 |
192.3 |
220.3 |
||
Profit After Tax (FRS 3) |
41.3 |
67.2 |
83.4 |
107.6 |
135.6 |
||
Average Number of Shares Outstanding (m) |
108.7 |
108.8 |
109.1 |
109.4 |
109.7 |
||
EPS (p) |
100.4 |
142.8 |
154.1 |
175.8 |
199.9 |
||
EPS - normalised (p) |
|
|
100.4 |
142.4 |
153.6 |
175.3 |
199.3 |
EPS - (IFRS) (p) |
31.2 |
53.8 |
76.4 |
98.4 |
123.6 |
||
Dividend per share (p) |
0.0 |
40.0 |
42.0 |
44.1 |
46.3 |
||
Gross Margin (%) |
49.1 |
45.0 |
45.1 |
45.2 |
45.2 |
||
EBITDA Margin (%) |
28.1 |
28.3 |
27.8 |
27.8 |
27.8 |
||
Operating Margin (before GW and except.) (%) |
24.9 |
25.6 |
25.7 |
25.9 |
26.1 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
1,045.6 |
979.6 |
899.6 |
819.6 |
739.6 |
Intangible Assets |
1,008.7 |
933.8 |
854.4 |
775.1 |
695.7 |
||
Tangible Assets |
31.6 |
30.8 |
30.2 |
29.5 |
28.9 |
||
Other long term assets |
5.2 |
15.0 |
15.0 |
15.0 |
15.0 |
||
Current Assets |
|
|
165.9 |
285.9 |
398.8 |
535.1 |
695.9 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors (incl swaps) |
53.2 |
43.7 |
53.7 |
63.7 |
73.7 |
||
Cash |
100.3 |
212.6 |
315.5 |
441.8 |
592.6 |
||
Player balances |
12.4 |
29.6 |
29.6 |
29.6 |
29.6 |
||
Current Liabilities |
|
|
(122.6) |
(157.1) |
(157.1) |
(157.1) |
(157.1) |
Creditors |
(117.9) |
(151.0) |
(151.0) |
(151.0) |
(151.0) |
||
Short term borrowings |
(4.7) |
(6.1) |
(6.1) |
(6.1) |
(6.1) |
||
Contingent consideration |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(624.2) |
(589.0) |
(582.5) |
(576.0) |
(569.5) |
Long term borrowings |
(548.2) |
(524.7) |
(518.2) |
(511.7) |
(505.2) |
||
Contingent consideration |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(75.9) |
(64.3) |
(64.3) |
(64.3) |
(64.3) |
||
Net Assets |
|
|
464.7 |
519.4 |
558.8 |
621.6 |
708.9 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
78.1 |
225.6 |
213.2 |
237.9 |
265.4 |
Net Interest |
(21.0) |
(25.0) |
(19.4) |
(17.1) |
(14.7) |
||
Tax |
(3.0) |
(11.2) |
(18.7) |
(21.4) |
(24.4) |
||
Capex |
(16.7) |
(19.5) |
(20.0) |
(20.0) |
(20.0) |
||
Acquisitions (incl earn-outs) |
(199.7) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Financing |
171.0 |
(40.3) |
0.0 |
0.0 |
0.0 |
||
Dividends |
0.0 |
(13.0) |
(45.8) |
(46.6) |
(62.7) |
||
Other |
11.0 |
(6.7) |
(6.5) |
(6.5) |
7.1 |
||
Net Cash Flow |
19.7 |
109.9 |
102.9 |
126.3 |
150.8 |
||
Opening net debt/(cash) incl IFRS 16 |
|
|
287.1 |
452.7 |
318.2 |
208.8 |
76.0 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(185.3) |
24.6 |
6.5 |
6.5 |
6.5 |
||
Closing net debt/(cash) incl IFRS 16 |
|
|
452.7 |
318.2 |
208.8 |
76.0 |
(81.2) |
Source: Company accounts, Edison Investment Research
|
|
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