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Research: Consumer
In a continuation of previous trends, Gamesys has reported a 19% increase in Q120 pro-forma revenues to £155.3m. The business has no retail or sport exposure and the first few weeks of Q220 have been strong. Geographically, Asian markets are driving growth and the UK has been solid. During the COVID-19 lockdown period, Gamesys is proactively instigating responsible gaming measures, which include ceasing all TV advertising, and the company is donating £200,000 to Women’s Aid. The stock trades at 6.2x P/E and 6.7x EV/EBITDA with an estimated 13.1% free cash flow yield for FY21.
Written by
Gamesys Group |
Growth through responsible gaming |
Trading update |
Travel & leisure |
23 April 2020 |
Share price performance
Business description
Next events
Analysts
Gamesys Group is a research client of Edison Investment Research Limited |
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In a continuation of previous trends, Gamesys has reported a 19% increase in Q120 pro-forma revenues to £155.3m. The business has no retail or sport exposure and the first few weeks of Q220 have been strong. Geographically, Asian markets are driving growth and the UK has been solid. During the COVID-19 lockdown period, Gamesys is proactively instigating responsible gaming measures, which include ceasing all TV advertising, and the company is donating £200,000 to Women’s Aid. The stock trades at 6.2x P/E and 6.7x EV/EBITDA with an estimated 13.1% free cash flow yield for FY21.
Year end |
Revenue (£m) |
EBITDA |
EPS* |
DPS |
P/E |
Yield |
12/18 |
319.6 |
112.7 |
118.5 |
0.0 |
6.7 |
N/A |
12/19** |
565.3 |
158.9 |
100.4 |
0.0 |
8.0 |
N/A |
12/20e** |
601.7 |
175.8 |
110.8 |
30.0 |
7.2 |
3.8 |
12/21e** |
640.0 |
196.0 |
130.0 |
40.5 |
6.2 |
5.1 |
Note: *EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma figures.
Strong trading in Q120 and into Q220
Q120 pro-forma revenues increased by 19% to £155.3m, driven by continuing strength in Asian markets. The UK and European performance was solid, with the exception of Sweden, which remains a very competitive market. The group is highly cash generative and we are forecasting significant deleverage going forward, from a ratio of 2.8x net debt/EBITDA at FY19 to 2.0x in FY20 and 1.4x in FY21. We expect cash returns to shareholders from FY20 onwards. Trading into Q220 has been strong, but our forecasts remain unchanged at this early stage of the year.
Emphasising responsible gaming
Gamesys has proactively instigated a number of responsible gaming measures, during the COVID-19 related lockdown (including enhanced human and automated checks) and, to reinforce its community based entertainment, Gamesys has provided 10 hours of free bingo every day (where allowed). Furthermore, it has suspended untargeted customer marketing and ceased all TV and radio advertising in the UK until current social restrictions are eased. Gamesys will also temporarily remove all Jackpotjoy branding around the sponsorship of ITV’s popular ‘Loose Women’ TV show, making the sponsorship opportunity available for Women’s Aid. Gamesys has also donated £200,000 to Women’s Aid, to enhance the charity’s chat capacity.
Valuation: 13.1% free cash flow yield for FY21e
For FY21e, the stock trades at 6.2x P/E and 6.7x EV/EBITDA, with a 13.1% free cash flow yield (including interest payments) and a dividend yield of 5.1%. Operationally, the business has no meaningful exposure to sports (and hence sports cancellations) and its online e-gaming business should be relatively secure despite the coronavirus pandemic.
Exhibit 1: Financial summary
£m |
2017 |
2018 |
2019* |
2020e* |
2021e* |
2022e* |
||
Year end 31 December |
||||||||
PROFIT & LOSS |
||||||||
Revenue |
|
|
304.7 |
319.6 |
565.3 |
601.7 |
640.0 |
681.4 |
Cost of Sales |
(147.5) |
(158.9) |
(287.9) |
(310.9) |
(322.4) |
(344.5) |
||
Gross Profit |
157.2 |
160.7 |
277.4 |
290.8 |
317.7 |
336.9 |
||
EBITDA |
|
|
108.6 |
112.7 |
158.9 |
175.8 |
196.0 |
207.4 |
Operating Profit (before amort. and except.) |
|
|
108.2 |
112.2 |
140.9 |
157.8 |
178.0 |
189.4 |
Intangible Amortisation |
(62.6) |
(60.3) |
(52.7) |
(52.7) |
(52.7) |
(52.7) |
||
Exceptional and other items |
(104.9) |
(16.3) |
(23.4) |
0.0 |
0.0 |
0.0 |
||
Share based payments |
(1.4) |
(0.6) |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
||
Operating Profit |
(60.8) |
35.0 |
64.3 |
104.6 |
124.8 |
136.2 |
||
Net Interest |
(30.0) |
(19.5) |
(21.4) |
(24.0) |
(21.0) |
(19.0) |
||
Profit Before Tax (norm) |
|
|
78.2 |
92.7 |
119.5 |
133.8 |
157.0 |
170.4 |
Profit Before Tax (FRS 3) |
|
|
(65.8) |
18.5 |
44.2 |
80.6 |
103.8 |
117.2 |
Tax |
(0.7) |
(0.5) |
(2.9) |
(13.4) |
(15.7) |
(17.0) |
||
Profit After Tax (norm) |
77.5 |
92.3 |
116.5 |
120.4 |
141.3 |
153.4 |
||
Profit After Tax (FRS 3) |
(66.5) |
18.1 |
41.3 |
67.3 |
88.1 |
100.2 |
||
Average Number of Shares Outstanding (m) |
73.9 |
74.2 |
108.7 |
108.7 |
108.7 |
108.7 |
||
EPS (p) |
104.9 |
119.5 |
100.4 |
110.8 |
130.0 |
141.1 |
||
EPS - normalised (p) |
|
|
103.9 |
118.5 |
100.4 |
110.8 |
130.0 |
141.1 |
EPS - (IFRS) (p) |
(90.0) |
19.5 |
31.2 |
61.9 |
81.1 |
92.2 |
||
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
30.0 |
40.5 |
46.1 |
||
Gross Margin (%) |
51.6 |
50.3 |
49.1 |
48.3 |
49.6 |
49.4 |
||
EBITDA Margin (%) |
35.6 |
35.3 |
28.1 |
29.2 |
30.6 |
30.4 |
||
Operating Margin (before GW and except.) (%) |
35.5 |
35.1 |
24.9 |
26.2 |
27.8 |
27.8 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
595.9 |
521.9 |
1,045.6 |
992.9 |
942.2 |
891.5 |
Intangible Assets |
589.0 |
514.7 |
1,008.7 |
965.0 |
922.3 |
879.6 |
||
Tangible Assets |
1.3 |
2.2 |
31.7 |
22.6 |
14.6 |
6.6 |
||
Other long term assets |
5.6 |
5.0 |
5.2 |
5.2 |
5.2 |
5.2 |
||
Current Assets |
|
|
93.2 |
124.0 |
165.9 |
217.3 |
244.0 |
269.8 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors (incl swaps) |
26.0 |
30.5 |
53.2 |
58.2 |
63.2 |
68.2 |
||
Cash |
59.0 |
84.4 |
100.3 |
145.7 |
166.4 |
186.2 |
||
Player balances |
8.2 |
9.0 |
12.4 |
13.4 |
14.4 |
15.4 |
||
Current Liabilities |
|
|
(98.5) |
(52.3) |
(122.6) |
(117.6) |
(112.6) |
(107.6) |
Creditors |
(46.3) |
(47.8) |
(117.9) |
(112.9) |
(107.9) |
(102.9) |
||
Short term borrowings |
(0.3) |
0.0 |
(4.7) |
(4.7) |
(4.7) |
(4.7) |
||
Contingent consideration |
(51.9) |
(4.5) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(386.7) |
(374.5) |
(624.2) |
(574.2) |
(524.2) |
(474.2) |
Long term borrowings |
(369.5) |
(371.5) |
(545.8) |
(495.8) |
(445.8) |
(395.8) |
||
Contingent consideration |
(7.7) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(9.4) |
(3.0) |
(78.3) |
(78.3) |
(78.3) |
(78.3) |
||
Net Assets |
|
|
204.1 |
219.1 |
464.7 |
518.4 |
549.4 |
579.5 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
102.0 |
106.8 |
100.8 |
150.8 |
171.0 |
182.4 |
Net Interest |
(30.9) |
(19.5) |
(22.7) |
(24.0) |
(21.0) |
(19.0) |
||
Tax |
(1.0) |
(0.8) |
(3.0) |
(13.4) |
(15.7) |
(17.0) |
||
Capex |
(3.2) |
(5.3) |
(16.7) |
(18.0) |
(20.0) |
(20.0) |
||
Acquisitions (inc earn-outs) |
(94.2) |
(55.3) |
(462.0) |
0.0 |
0.0 |
0.0 |
||
Financing |
22.2 |
(2.3) |
240.5 |
0.0 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
(43.6) |
(56.6) |
||
Net Cash Flow |
(5.2) |
23.6 |
(163.2) |
95.5 |
70.7 |
69.8 |
||
Opening net debt/(cash) |
|
|
305.6 |
310.7 |
287.1 |
450.3 |
354.8 |
284.1 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
310.7 |
287.1 |
450.3 |
354.8 |
284.1 |
214.3 |
NPV of outstanding earnouts/other |
|
|
76.6 |
15.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Currency swaps |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Adjusted net debt |
|
|
387.3 |
302.1 |
450.3 |
354.8 |
284.0 |
214.2 |
Source: Gamesys Group accounts, Edison Investment Research. Note: *Pro forma figures.
|
|
Research: Financials
With more than 90% of assets under management equivalent (AUME) linked to equity and other market levels it was not surprising to see Record’s AUME fall by 9% in the quarter to end March. Positively, flows and client count moved little in the period. For FY20 as a whole AUME was up 2% in dollar terms, inflows were equivalent to 8% of the opening level and the number of clients increased by 11%. The group acts on a purely agency business, and has a sticky institutional client base and a strong net cash position.