Main menu
Edison Group
  • Home
  • Sparks
  • Equities

    Equities

    View All Equities

    Equities by Sector

    YXT.com

    MCap

    USD127m

    Last close

    USD23.43

    ▲ 20.23 (632.19%)

    Northern Data Group

    MCap

    EUR486m

    Last close

    EUR7.56

    ▲ 2.33 (44.59%)

    Bodycote

    MCap

    GBP1,572m

    Last close

    GBP9.23

    ▲ 173.00 (23.07%)

  • Sectors

    Sectors

  • Megatrends

    Megatrends

  • Thematics

    Thematics

    View All Thematics

    Latest

  • Audiovisual

    Audiovisual

    View All Audiovisual

    Latest

Gaming Realms — Update 7 June 2016

Gaming Realms — Update 7 June 2016

Gaming Realms

Analyst avatar placeholder

Written by

Gaming Realms

Strategic partnership to maximise agency value

New strategic partnership

Travel & leisure

7 June 2016

Price

20.75p

Market cap

£53m

US$1.44/€1.29/£

Net cash (£m) at 31 December 2015

2.3

Shares in issue

256.9m

Free float

67%

Code

GMR

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.0

9.2

(37.1)

Rel (local)

(0.7)

7.7

(30.3)

52-week high/low

34.5p

18.2p

Business description

Gaming Realms creates, develops and markets interactive next-generation online gambling and social games delivered via mobile, tablet and desktop computers. It listed on AIM via a reverse takeover (of Pursuit Dynamics) in August 2013.

Next events

AGM

June 2016

Analysts

Eric Opara

+44 (0)20 3681 2524

Jane Anscombe

+44 (0)20 3077 5740

Gaming Realms is a research client of Edison Investment Research Limited

Gaming Realms has announced a strategic partnership with the Ayima digital marketing agency whereby it is injecting its QuickThink Media (QTM) assets in return for a 10% stake valued at £540k. The rationale for the deal is to allow Gaming Realms’ management to further focus on its core strength, being the development and publishing of mobile optimised social and real money games, while also strengthening QTM’s outlook by placing it within a growing complementary business.

Year end

Revenue (£m)

EBITDA*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14**

11.2

(7.8)

(5.0)

0.0

N/A

N/A

12/15

21.2

(4.1)

(2.2)

0.0

N/A

N/A

12/16e

37.1

0.8

(0.1)

0.0

N/A

N/A

12/17e

54.3

6.9

2.1

0.0

9.9

N/A

Note: *Normalised (and diluted EPS), excluding exceptional items, amortisation of acquired intangibles and share-based payments. **15-month period to December 2014.

Gaming Realms to retain interest in future prospects

The terms of the deal will see Gaming Realms receive shares in Ayima equal to 10% of the enlarged Ayima share capital (valued by Gaming Realms at £540k) following its completion. We believe that the QTM assets will benefit from revenue synergies as a result of being part of a successful specialist digital marketing business, enabling it to continue to develop its service offering while also taking advantage of Ayima’s enhanced sales channels. Consequently QTM should be better placed to achieve growth going forward, with Gaming Realms remaining leveraged to its future success via its Ayima shareholding.

Revised forecasts

We have reduced our 2016 revenue forecasts from £40m to £37.1m to reflect the disposal, with a commensurate reduction in Gaming Realms’ cost base to arrive at an unchanged 2016 adjusted EBITDA forecast of £0.8m. We have also taken the deal as an opportunity to revisit our 2017 forecasts including the full year impact of the QTM disposal and the effect of the extension of the UK Point of Consumption tax (POCT) to free play; we have reduced our 2017 revenue forecast from £65.0m to £54.3m and our adjusted EBITDA forecast from £11.6m to £6.9m.

Valuation: Revised 2017 forecasts still suggest value

Gaming Realms trades on a 2017e EV/EBITDA of 7.1x, placing it at a discount to its peer group average of 8.6x. We believe that the discount reflects a level of historic business mix volatility and the fact that Gaming Realms is yet to achieve profitability. We continue to expect EBITDA profitability to be achieved this year. EBITDA profitability coupled with a period of stability should be rewarded with a positive re-rating.

Deal rationale and terms

QuickThink Media background

QuickThink Media (QTM) is a specialist marketing agency. It has a team of c 20 digital marketing professionals whose tasks are divided between a digital marketing agency and an online gaming affiliate business. It has a number of external clients including Macmillan Cancer Trust and Iceland in addition to providing services to Gaming Realms itself.

The sale of the QTM assets reflects a continuation of Gaming Realms’ strategy of concentrating its efforts on those activities from which it is able to achieve the best return on its investment. The continued strong KPIs delivered by games on its proprietary Grizzly platform including the 2015 acquisition of Slingo, compared to the relatively stagnant revenues reported for the QTM business support this view. Although QTM has successfully retained a number of high-quality clients including Macmillan Cancer Trust, management believes that its growth prospects would be better served under the stewardship of a larger specialist digital marketing organisation.

Ayima background

Ayima is a specialist digital marketing agency providing search engine optimisation (SEO) and pay-per-click (PPC) solutions to some of the world’s biggest brands including British Airways, bwin, M&S and Verizon. The company was founded as a specialist search consultancy business in 2007 by its three founders, who have longstanding gaming sector experience, having come together at PartyGaming. All three founders remain with the business, which now employs over 100 people in five countries and has been recognised as one of the fastest growing tech companies in the UK and Europe by The Sunday Times Tech Track.

Terms of the deal

The deal is a non-cash transaction that will see Gaming Realms receive newly issued shares in Ayima. The shares will constitute 10% of the enlarged issued share capital of privately held Ayima and have been valued by Gaming Realms at approximately £540,000.

The strategic partnership with Ayima will result in the majority of QTM staff being transferred to work under the Ayima umbrella. A small number of QTM staff members will remain with Gaming Realms in order to ensure that it retains a level of dedicated digital marketing capability in house to continue to support the house brands.

The use of shares to settle the deal is representative of the confidence of Gaming Realms management in the expertise of the QTM staff that will be transferred to Ayima and in the ability of Ayima’s management to maximise the value of the QTM assets.

For the financial year ended 31 December 2015, losses attributable to QTM were approximately £20k and the company was valued at approximately £400k on Gaming Realms’ balance sheet as at the end of 2015.

Financials: Revised estimates

We have revised our forecasts to reflect the disposal of the QTM business. Our 2016 forecast for marketing services revenue falls from £7.5m to £4.6m, which comprises a five-month contribution from QTM together with a 12-month contribution from BingoPort. We have also slightly rebalanced our social (including licensing revenues) and real money gaming mix in favour of social gaming revenues in reflection of the early success achieved in licensing and what we believe to be a promising pipeline of further deals. The net effect is to reduce 2016e revenues from £40.0m to £37.1m, while our 2016e adjusted EBITDA remains unchanged.

2017 will be the first year that will see a full year impact from the announced deal. The previously announced extension of the UK POCT to incorporate free plays and bonus credits will also come into effect from August 2017. The industry awaits further clarification from the government on exactly how the tax is to be calculated; as a result, it remains unclear exactly how much the tax will cost. However, we recognise that the tax will have a direct cost impact and is likely to result in a lower level of marketing efficiency as industry participants look for alternative approaches to what continues to be one of the industry’s most effective marketing tools. For the sake of prudence we have reduced our revenue forecasts and increased the gaming tax charge that we expect. The effect of this is summarised in Exhibit 1:

Exhibit 1: Changes to forecasts

Revenue (£m)

EBITDA (£m)

EPS (p)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2016e

40.0

37.1

(7.3)

0.8

0.8

N/A

(0.0)

(0.1)

N/A

2017e

65.0

54.3

(16.5)

11.6

6.9

(40.5)

3.8

2.1

(44.7)

Source: Edison Investment Research

Balance sheet and cash flows: Gaming Realms had net cash of £2.3m at the end of 2015. We do not expect the QTM deal to have any material impact on its end 2016e net cash position and as a result our forecast remains unchanged at £2.7m. Importantly despite our downgrade to 2017e revenues and profits, our analysis still leads us to believe that it will be the first year of significantly positive operating and net cash flows, which we forecast at £4.9m (previously £9.6m) and £2.9m (previously £7.6m), respectively, leaving the company with an end December 2017 net cash position of £5.6m. As a result, we do not expect the need for any further external funding in the absence of further M&A activity.

Exhibit 2: Financial summary

£m

2013*

2014**

2015

2016e

2017e

September/December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0.88

11.23

21.21

37.08

54.30

EBITDA

 

 

(2.32)

(7.82)

(4.11)

0.76

6.92

Operating Profit (before amort. and except.)

 

(2.44)

(8.33)

(4.72)

(0.39)

5.77

Amortisation of acquired intangibles*

(0.05)

(0.80)

(1.68)

(0.90)

(0.80)

Exceptional items

(0.87)

(0.23)

(0.32)

(0.40)

0.00

Share based payments

(0.04)

(0.44)

(0.67)

0.00

0.00

Operating Profit

(3.40)

(9.80)

(7.39)

(1.69)

4.97

Net Interest

(0.00)

(0.04)

(0.39)

0.00

0.00

Profit Before Tax (norm)

 

 

(2.44)

(8.38)

(5.11)

(0.39)

5.77

Profit Before Tax (FRS 3)

 

 

(3.40)

(9.85)

(7.78)

(1.69)

4.97

Tax

0.00

0.09

0.34

0.02

(0.25)

Profit After Tax (norm)

(2.44)

(8.28)

(4.77)

(0.37)

5.52

Profit After Tax (FRS 3)

(3.40)

(9.75)

(7.44)

(1.67)

4.72

Average Number of Shares Outstanding (m)

36.4

165.2

215.7

259.2

261.7

EPS - normalised (p)

 

 

(6.7)

(5.0)

(2.2)

(0.1)

2.1

EPS - normalised diluted (p)

 

 

(6.7)

(5.0)

(2.2)

(0.1)

2.1

EPS - (IFRS) (p)

 

 

(9.3)

(5.9)

(3.4)

(0.6)

1.8

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

-264.1

-69.6

-19.4

2.1

12.7

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

-277.7

-74.2

-22.3

-1.0

10.6

BALANCE SHEET

Fixed Assets

 

 

6.03

17.06

29.27

24.79

25.64

Intangible Assets

5.92

16.76

28.93

24.60

24.60

Tangible Assets

0.12

0.30

0.34

0.19

1.04

Investments

0.00

0.00

0.00

0.00

0.00

Current Assets

 

 

6.53

6.24

6.55

6.41

11.34

Stocks

0.00

0.00

0.00

0.00

0.00

Debtors

1.34

2.22

4.02

3.50

5.50

Cash

5.06

3.99

2.34

2.71

5.64

Other

0.12

0.02

0.20

0.20

0.20

Current Liabilities

 

 

(1.80)

(5.26)

(9.32)

(6.10)

(7.00)

Creditors

(1.78)

(5.25)

(9.32)

(6.10)

(7.00)

Short term borrowings

(0.02)

(0.01)

0.00

0.00

0.00

Long Term Liabilities

 

 

(0.02)

(2.43)

(3.71)

0.00

0.00

Long term borrowings

(0.02)

0.00

0.00

0.00

0.00

Other long term liabilities

0.00

(2.43)

(3.71)

0.00

0.00

Net Assets

 

 

10.74

15.61

22.80

25.11

29.98

CASH FLOW

Operating Cash Flow

 

 

(3.90)

(8.02)

(3.83)

(1.64)

4.92

Net Interest

0.00

(0.04)

(0.25)

0.00

0.00

Tax

0.00

0.05

0.34

0.00

0.00

Capex

(0.44)

(0.69)

(2.49)

(1.00)

(2.00)

Acquisitions/disposals

3.42

(4.12)

(7.45)

1.70

0.00

Financing

5.91

11.81

12.00

1.30

0.00

Dividends

0.00

0.00

0.00

0.00

0.00

Net Cash Flow

4.99

(1.01)

(1.68)

0.36

2.92

Opening net debt/(cash)

 

 

0.00

(5.02)

(3.98)

(2.34)

(2.71)

HP finance leases initiated

0.00

0.00

0.00

0.00

0.00

Other

0.03

(0.03)

0.04

0.01

(0.00)

Closing net debt/(cash)

 

 

(5.02)

(3.98)

(2.34)

(2.71)

(5.64)

Source: Edison Investment Research, Gaming Realms accounts. Note: *Includes AlchemyBet and BeJig for two months. **15-month period as the year end changed to December.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Gaming Realms and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Investment Companies

Standard Life Equity Income Trust — Update 6 June 2016

Standard Life Equity Income Trust

Continue Reading
Cookie Policy Overview
Edison Group

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping us understand which section of the website you find more interesting and useful. See our Cookie Policy for more information.

Strictly necessary and functional

These cookies are used to deliver our website and content. Strictly necessary cookies relate to our hosting environment, and functional cookies are used to facilitate social logins, social sharing and rich-media content embeds.

Advertising

Advertising Cookies collect information about your browsing habits such as the pages you visit and links you follow. These audience insights are used to make our website more relevant.

Performance

Performance Cookies collect anonymous information designed to help us improve the site and respond to the needs of our audiences. We use this information to make our site faster, more relevant and improve the navigation for all users.