Gamesys Group — Ahead of recent guidance

Gamesys Group (GYS)

Last close As at 26/04/2024

1,850.00

0.00 (0.00%)

Market capitalisation

2,072m

More on this equity

Research: Consumer

Gamesys Group — Ahead of recent guidance

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%.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Gamesys Group

Ahead of recent guidance

FY20 results

Travel & leisure

9 March 2021

Price

1,434p

Market cap

£1,559m

Net debt (£m) at 31 December 2020 excluding IFRS 16

295.5

Shares in issue

108.7m

Free float

74%

Code

GYS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.2

32.8

112.8

Rel (local)

3.6

28.4

100.6

52-week high/low

1,440p

531p

Business description

Gamesys is a leading international online gaming operator with key exposure in the UK and Asia. The group was formed after JPJ Group acquired Gamesys for £490m in September 2019.

Next events

Q121 trading update

May 2021

H121 results

August 2021

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

Gamesys Group is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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


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.

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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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

1185 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 2021 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

1185 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

1185 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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