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Research: Consumer
Gamesys’ pro forma Q319 revenues increased by 20% to £144.3m due to 57% growth in Vera&John (international markets), strong momentum in the acquired Gamesys business and, encouragingly, a return to growth in the Jackpotjoy UK brand. The EBITDA margin declined 680bp to 26.7% as a result of higher taxes and marketing spend. We are raising our FY19 revenues estimate by 2.3% but keeping our EBITDA forecasts unchanged. We continue to forecast net cash flow of £105m in FY20 and our net debt/EBITDA falls from 3.0x currently to 2.0x at end FY20. The stock trades at 6.0x P/E and 7.1x EV/EBITDA, with a 13.8% FCF yield for FY20e.
Written by
Gamesys Group |
Growth across the enlarged group |
Q319 results |
Travel & leisure |
13 November 2019 |
Share price performance
Business description
Next events
Analysts
Gamesys Group is a research client of Edison Investment Research Limited |
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Gamesys’ pro forma Q319 revenues increased by 20% to £144.3m due to 57% growth in Vera&John (international markets), strong momentum in the acquired Gamesys business and, encouragingly, a return to growth in the Jackpotjoy UK brand. The EBITDA margin declined 680bp to 26.7% as a result of higher taxes and marketing spend. We are raising our FY19 revenues estimate by 2.3% but keeping our EBITDA forecasts unchanged. We continue to forecast net cash flow of £105m in FY20 and our net debt/EBITDA falls from 3.0x currently to 2.0x at end FY20. The stock trades at 6.0x P/E and 7.1x EV/EBITDA, with a 13.8% FCF yield for FY20e.
Year end |
Revenue (£m) |
EBITDA |
EPS* |
DPS |
P/E |
Yield |
12/17 |
304.7 |
108.6 |
103.9 |
0.0 |
6.8 |
N/A |
12/18 |
319.6 |
112.7 |
118.5 |
0.0 |
5.9 |
N/A |
12/19e** |
547.4 |
153.8 |
93.7 |
0.0 |
7.5 |
N/A |
12/20e** |
578.4 |
175.4 |
117.8 |
30.0 |
6.0 |
4.3 |
Note: *EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma figures.
Maiden group results: Vera&John up 57%
Gamesys’ pro forma Q319 revenues increased by 20% to £144.3m, driven by 57% growth in Vera&John, which includes £22.7m revenues from Japan (15.7% of group revenues). Encouragingly, JPJ UK has returned to growth after annualising difficult comps and the Gamesys brands are also performing well. As previously highlighted, pro forma EBITDA of £38.6m (26.7% margin vs 33.5% last year) was affected by increased taxes (UK and Sweden), as well as higher marketing spend internationally. We are raising our FY19 revenue estimate by 2.3% but leaving our EBITDA and net profit broadly unchanged. Although we believe there could be upside to our international forecasts, we note that grey markets can be far more lumpy and volatile.
Gamesys: Doubling the Jackpotjoy revenues
The group completed the acquisition of Gamesys in September 2019 for £490m and, on a pro forma basis, for 9M19 the Gamesys division contributed £150.3m to revenues, £40m to operating profit and £24.5m to net profit. The Gamesys brands have been included within the Jackpotjoy division and will roughly double divisional revenues. We continue to forecast double-digit growth for standalone Gamesys for FY20 and FY21. Going forward, we expect the company to report geographically rather than by division.
Valuation: 6.0x P/E for FY20e
Gamesys ended the quarter with unrestricted cash of £97.9m and adjusted net debt of £484.7m, which equates to 3.0x net debt/EBITDA, which we forecast will fall to 2.0x by year-end FY20. Gamesys trades at 7.1x EV/EBITDA and 6.0x P/E for FY20e, with an attractive FCF yield of 13.8%. 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* |
||
Year end 31 December |
|||||||
PROFIT & LOSS |
|||||||
Revenue |
|
|
304.7 |
319.6 |
547.4 |
578.4 |
618.8 |
Cost of Sales |
(147.5) |
(158.9) |
(305.5) |
(309.6) |
(323.8) |
||
Gross Profit |
157.2 |
160.7 |
241.9 |
268.9 |
295.0 |
||
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) |
(18.8) |
0.0 |
0.0 |
||
Share based payments |
(1.4) |
(0.6) |
(0.5) |
(0.5) |
(0.5) |
||
Operating Profit |
(60.8) |
35.0 |
73.5 |
113.4 |
137.1 |
||
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 |
45.0 |
91.4 |
121.1 |
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 |
33.7 |
77.2 |
103.9 |
||
Average Number of Shares Outstanding (m) |
73.9 |
74.2 |
108.4 |
108.4 |
108.4 |
||
EPS (p) |
104.9 |
119.5 |
93.7 |
117.8 |
142.4 |
||
EPS - normalised (p) |
|
|
103.9 |
118.5 |
93.7 |
117.8 |
142.4 |
EPS - (IFRS) (p) |
(90.0) |
19.5 |
31.1 |
71.2 |
95.9 |
||
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
30.0 |
45.0 |
||
Gross Margin (%) |
51.6 |
50.3 |
44.2 |
46.5 |
47.7 |
||
EBITDA Margin (%) |
35.6 |
35.3 |
28.1 |
30.3 |
32.3 |
||
Operating Margin (before GW and except.) (%) |
35.5 |
35.1 |
26.1 |
28.3 |
30.3 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
595.9 |
521.9 |
1,012.0 |
968.5 |
926.0 |
Intangible Assets |
589.0 |
514.7 |
980.0 |
939.0 |
899.0 |
||
Tangible Assets |
1.3 |
2.2 |
27.0 |
24.5 |
22.0 |
||
Other long-term assets |
5.6 |
5.0 |
5.0 |
5.0 |
5.0 |
||
Current Assets |
|
|
93.2 |
124.0 |
178.5 |
189.7 |
181.8 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors (incl swaps) |
26.0 |
30.5 |
61.0 |
66.0 |
71.0 |
||
Cash |
59.0 |
84.4 |
101.5 |
106.7 |
92.8 |
||
Player balances |
8.2 |
9.0 |
16.0 |
17.0 |
18.0 |
||
Current Liabilities |
|
|
(98.5) |
(52.3) |
(138.6) |
(133.6) |
(128.6) |
Creditors |
(46.3) |
(47.8) |
(134.0) |
(129.0) |
(124.0) |
||
Short term borrowings |
(0.3) |
0.0 |
(4.6) |
(4.6) |
(4.6) |
||
Contingent consideration |
(51.9) |
(4.5) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(386.7) |
(374.5) |
(556.4) |
(456.4) |
(356.4) |
Long term borrowings |
(369.5) |
(371.5) |
(555.4) |
(455.4) |
(355.4) |
||
Contingent consideration |
(7.7) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(9.4) |
(3.0) |
(1.0) |
(1.0) |
(1.0) |
||
Net Assets |
|
|
204.1 |
219.1 |
495.5 |
568.2 |
622.8 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
102.0 |
106.8 |
84.6 |
159.4 |
184.1 |
Net Interest |
(30.9) |
(19.5) |
(20.0) |
(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 earnouts) |
(94.2) |
(55.3) |
(462.0) |
0.0 |
0.0 |
||
Financing |
22.2 |
(2.3) |
244.0 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
(44.7) |
||
Net Cash Flow |
(5.2) |
23.6 |
(171.4) |
105.2 |
86.2 |
||
Opening net debt/(cash) |
|
|
305.6 |
310.7 |
287.1 |
458.5 |
353.3 |
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 |
458.5 |
353.3 |
267.1 |
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 |
458.5 |
353.3 |
267.1 |
Source: Gamesys Group, Edison Investment Research. Note: *Pro forma figures.
|
|
Research: Investment Companies
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