Q118 headline figures meet expectations
■
Revenues: Q118 driven by 35% growth in Vera&John
Q118 revenues increased 13% y-o-y to £80.7m, driven by 35% growth in Vera&John and 7% growth in the core Jackpotjoy division.
Within Jackpotjoy, the Spanish division has performed extremely well and Jackpotjoy UK appears to have posted mid-single-digit growth. The Mandalay division (which had previously reported revenue declines in FY17) has now been consolidated into Jackpotjoy, which has slightly depressed divisional growth.
At March 2018, average active customers per month grew 7% to 256,699 vs the prior year and average real money gaming revenue per month increased 17% to £24.5m. This equates to monthly real money gaming revenue per average active customer of £95, a y-o-y increase of 9%.
■
EBITDA: Q118 affected by marketing and higher UK gaming taxes
In line with our estimates, Q118 EBITDA was £27.1m, which represents a margin of 33.6% vs 40.9% in the prior year (£29.2m). Similar to Q417, the UK EBITDA was affected by the introduction of bonuses into the point of consumption tax (POCT 2) and total gaming taxes were 14.0% of total revenues, vs 11.2% in Q117. In addition, margins were affected by continued marketing campaigns across the group. Total marketing costs were 18.0% of revenues vs 13.5% in the prior year. For the full year, we continue to estimate marketing costs of 16.5% of revenues.
■
Increased contingent consideration leads to higher net debt/EBITDA
The bingo-led business is characterised by high cash conversion and JPJ produced £24.4m of operating cashflow in the quarter, in line with expectations. The company ended the quarter with an unrestricted cash balance of £76.2m and unadjusted net debt of £292m. Including the non-compete payments and contingent consideration, adjusted net debt was £379.9m, which equates to a 3.57x adjusted net debt/EBITDA. This is slightly higher than our expectations, primarily due to the increased contingent consideration, which resulted from a stronger performance in the Spanish division.
■
Outlook and forecast changes
Management has stated that trading is in line with expectations and our forecasts remain broadly unchanged. The only notable difference is a slight increase in net debt due to the higher than expected earn-out payment in June. Our FY18 unadjusted net debt goes from £286m to £303m.
Jackpotjoy (74% of revenues): Now includes Mandalay
JPJ has now consolidated the Mandalay division into the Jackpotjoy division, with total revenues for the division of £59.5m, representing growth of 7%. Jackpotjoy UK comprised 60% of divisional revenues, indicating a 5% y-o-y growth and we believe Mandalay has continued its revenue decline. To compensate, Starspins and Botemania now comprise approximately 24% of divisional revenues, suggesting 57% growth vs the prior year. This impressive performance is the reason for the increase in contingent consideration.
In terms of profit, divisional EBITDA remains robust, at £26.1m or 43.9% margin. This is despite the rises in UK gaming taxes and the ongoing marketing campaign. Altogether, we have lowered our FY18 revenue forecasts for the whole Jackpotjoy division by c £4m (or 1.6%), although our EBITDA forecast remains broadly unchanged.
Vera&John (26% of revenues): Strong revenues, EBITDA in line
JPJ has continued its impressive growth trajectory in international markets and Vera&John Q118 revenues increased by 35% y-o-y to £21.2m, equating to 31% in constant currency. Q118 adjusted EBITDA of £4.0m represented an EBITDA margin of 18.9% (vs 28% in the prior year), with the decline predominantly due to continued marketing expenses. Increased gaming taxes in regulated markets and additional personnel also contributed to higher expenses.
For 2018, we have raised our revenue growth estimate to 22.7% (vs 17% previously), although our EBITDA estimate remains broadly unchanged.
We summarise our divisional forecasts in Exhibit 1 below.
Exhibit 1: Divisional breakdown
Gaming revenue (£m) |
2016* |
2017 |
2018e |
2019e |
2020e |
Jackpotjoy |
209.9 |
231.5 |
244.7 |
258.4 |
271.6 |
Growth |
47.1% |
10.3% |
5.7% |
5.6% |
5.1% |
Vera&John |
57.0 |
73.2 |
89.8 |
100.3 |
110.4 |
Growth |
35.4% |
28.3% |
22.7% |
11.8% |
10.0% |
Total gaming revenue |
266.9 |
304.7 |
334.5 |
358.7 |
382.0 |
Growth |
38.2% |
14.1% |
9.8% |
7.3% |
6.5% |
|
|
|
|
|
|
EBITDA (£m) |
|
|
|
|
|
Jackpotjoy |
91.2 |
102.2 |
105.1 |
107.9 |
110.8 |
Margin |
43.5% |
44.2% |
42.9% |
41.7% |
40.8% |
Vera&John |
18.0 |
18.0 |
21.3 |
22.6 |
25.4 |
Margin |
31.6% |
24.6% |
23.8% |
22.5% |
23.0% |
Corporate costs |
(7.0) |
(11.7) |
(12.8) |
(14.0) |
(14.1) |
Margin |
(2.6%) |
(3.8%) |
(3.8%) |
(3.9%) |
(3.7%) |
EBITDA adjusted |
102.2 |
108.6 |
113.6 |
116.5 |
122.0 |
EBITDA margin |
38.3% |
35.6% |
34.0% |
32.5% |
31.9% |
Source: Company accounts, Edison Investment Research. Note: *2016 gaming revenues exclude £2.1m of other revenues from a revenue guarantee and platform migration revenue.
Cash flow and balance sheet
JPJ ended the quarter with an unrestricted cash balance of £76.2m and adjusted net debt of £379.9m. Unadjusted net debt was £292m (excluding contingent consideration and non-compete payments). Cash conversion of 90% produced an operating cash flow of £24m and is in line with our yearly estimates of c £100m.
As discussed above, the total contingent consideration has increased from £59.6m at end FY17 to £72.1m at Q118, of which the current portion is £63.8m. The payment of the Botemania earn-out is due in June 2018. Adjusted net debt/EBITDA ratio was 3.57x at Q118 vs 3.6x at FY17. We forecast unadjusted net debt of £302.5m in 2018, with an adjusted net leverage of 2.8x, reaching the company’s target of less than 2.0x during 2019.
Exhibit 2: Changes to estimates
|
Revenue (£m) |
EBITDA (£m) |
EPS (p) |
|
Old |
New |
% chg |
Old |
New |
% chg |
Old |
New |
% chg |
2018e |
334.0 |
334.5 |
0.1 |
113.6 |
113.6 |
0.0 |
119.7 |
120.4 |
0.6 |
2019e |
358.7 |
358.7 |
0.0 |
116.5 |
116.5 |
0.0 |
128.2 |
128.1 |
(0.1) |
2020e |
381.5 |
382.0 |
0.1 |
122.2 |
122.0 |
(0.2) |
136.1 |
135.8 |
(0.2) |
Source: Company accounts, Edison Investment Research
Geographic split, gaming taxes and regulation
JPJ operates largely in regulated markets (76% of revenue), with bingo-led and casino products comprising 95% of total revenues. In line with the company’s goal to diversify geographically, we would expect future growth from additional European markets (eg Italy) as well as Latin America (eg Brazil, Colombia).
Exhibit 3: 2017 geographic revenues
|
Exhibit 4: 2017 product revenues
|
|
|
|
|
|
Exhibit 3: 2017 geographic revenues
|
|
|
|
Exhibit 4: 2017 product revenues
|
|
|
|
The company pays significant gaming taxes (at 14% of total revenues at Q118), which are expected to rise steadily as new markets regulate. Regulatory changes are a key variable for gaming operators and we highlight the countries of specific interest below:
■
UK: last year’s extension of 15% Point of Consumption Tax (POCT) to include free bets in the UK has been enforced from August 2017, and affects financials from October 2017. Overall, this tax has affected the UK businesses’ EBITDA (Mandalay, Starspins and Jackpotjoy UK) by c 3-4%. In addition, there is speculation that the POCT could be raised to 20% to offset the loss of other gaming taxes (specifically from the fixed odds betting terminals). This would have a significant impact on EBITDA (£9.5m or 9% of total EBITDA). .
■
Spain: the 25% tax on Spanish gross gaming revenues is becoming more relevant as Botemania revenues continue to increase. At FY17, we estimate that Botemania comprised c 11% of the Jackpotjoy division, or 8% of total revenues. Recent proposals for a decrease in Spanish gaming taxes to 20% would be a positive for JPJ (£1.1m EBITDA uplift based on FY17 figures), although at this stage there is little clarity on timing.
■
Sweden: our forecasts include the expected 18% gaming tax in Sweden from 2019. This will mostly affect the Vera&John division, where we estimate that one-third of revenues are derived from Sweden. With a further estimated c 5% of the Jackpotjoy division coming from Sweden, total Swedish revenues are approximately 9% of group revenues. Our FY19 estimates include a tax hit of c £5.5m on EBITDA (5% of total EBITDA).
■
Norway: We estimate that approximately 2-3% of revenues are derived from Norway, which is a grey market with no immediate prospects of regulation. Proposals in Norway include domain name system (DNS) blocking (pop-up messages on unregulated gambling sites) as well as measures around the reporting of online gambling payments. At present, most operators believe these proposals would be illegal, but clearly there is some risk to these revenues.
Exhibit 5: Financial summary
|
|
£m |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
December |
|
|
|
|
|
|
|
|
PROFIT & LOSS |
|
|
|
|
|
|
|
|
Revenue |
|
|
194.6 |
269.0 |
304.7 |
334.5 |
358.7 |
382.0 |
Cost of Sales |
|
|
(101.4) |
(130.7) |
(147.5) |
(167.0) |
(187.0) |
(200.8) |
Gross Profit |
|
|
93.3 |
138.3 |
157.2 |
167.4 |
171.7 |
181.2 |
EBITDA |
|
|
70.4 |
102.2 |
108.6 |
113.6 |
116.5 |
122.0 |
Operating Profit (before amort. and except.) |
70.1 |
101.6 |
108.2 |
113.1 |
116.0 |
121.5 |
Intangible Amortisation |
|
|
(50.6) |
(55.5) |
(62.6) |
(61.8) |
(61.8) |
(61.8) |
Exceptional and other items ** |
|
|
(109.7) |
(80.3) |
(104.9) |
(17.0) |
2.0 |
2.0 |
Share based payments |
|
|
(2.9) |
(2.3) |
(1.4) |
(2.1) |
(2.0) |
(2.0) |
Operating Profit |
|
|
(93.1) |
(36.5) |
(60.8) |
32.2 |
54.2 |
59.8 |
Net Interest |
|
|
(24.0) |
(18.1) |
(30.0) |
(19.4) |
(14.0) |
(13.0) |
Profit Before Tax (norm) |
|
|
46.1 |
83.5 |
78.2 |
93.7 |
102.0 |
108.5 |
Profit Before Tax (FRS 3) |
|
|
(114.2) |
(36.7) |
(65.8) |
14.3 |
40.2 |
46.8 |
Tax |
|
|
(0.5) |
0.1 |
(0.7) |
(3.0) |
(5.0) |
(5.0) |
Profit After Tax (norm) |
|
|
45.5 |
83.6 |
77.5 |
90.7 |
97.0 |
103.5 |
Profit After Tax (FRS 3) |
|
|
(114.8) |
(36.7) |
(66.5) |
11.3 |
35.2 |
41.8 |
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
61.2 |
71.2 |
73.9 |
74.6 |
75.0 |
75.5 |
EPS - normalised (p) |
|
|
74.4 |
117.3 |
104.9 |
121.6 |
129.3 |
137.1 |
EPS - normalised and fully diluted (p) |
|
73.1 |
112.6 |
103.9 |
120.4 |
128.1 |
135.8 |
EPS - (IFRS) (p) |
|
|
(187.6) |
(51.5) |
(90.0) |
15.2 |
46.9 |
55.3 |
Dividend per share (p) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
40.0 |
45.0 |
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
47.9 |
51.4 |
51.6 |
50.1 |
47.9 |
47.4 |
EBITDA Margin (%) |
|
|
36.2 |
38.0 |
35.6 |
34.0 |
32.5 |
31.9 |
Operating Margin (before GW and except.) (%) |
36.0 |
37.8 |
35.5 |
33.8 |
32.3 |
31.8 |
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
674.3 |
652.3 |
595.9 |
537.7 |
480.4 |
423.2 |
Intangible Assets |
|
|
668.8 |
648.8 |
589.0 |
527.2 |
465.5 |
403.7 |
Tangible Assets |
|
|
0.2 |
0.9 |
1.3 |
4.8 |
9.3 |
13.9 |
Other long term assets |
|
|
5.3 |
2.6 |
5.6 |
5.6 |
5.6 |
5.6 |
Current Assets |
|
|
63.9 |
139.0 |
93.2 |
77.2 |
93.8 |
98.4 |
Stocks |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Debtors (incl swaps) |
|
|
25.6 |
62.0 |
26.0 |
30.0 |
32.0 |
34.0 |
Cash |
|
|
31.8 |
68.5 |
59.0 |
37.2 |
50.8 |
52.4 |
Player balances |
|
|
6.5 |
8.6 |
8.2 |
10.0 |
11.0 |
12.0 |
Current Liabilities |
|
|
(54.3) |
(154.9) |
(98.5) |
(49.3) |
(47.3) |
(47.3) |
Creditors |
|
|
(23.1) |
(41.3) |
(46.3) |
(45.0) |
(45.0) |
(45.0) |
Short term borrowings |
|
|
(25.2) |
(26.7) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
Contingent consideration |
|
|
(6.0) |
(86.9) |
(51.9) |
(4.0) |
(2.0) |
(2.0) |
Long Term Liabilities |
|
|
(394.8) |
(397.1) |
(386.7) |
(343.5) |
(291.5) |
(241.5) |
Long term borrowings |
|
|
(189.3) |
(347.4) |
(369.5) |
(339.5) |
(289.5) |
(239.5) |
Contingent consideration |
|
|
(203.6) |
(33.3) |
(7.7) |
(2.0) |
0.0 |
0.0 |
Other long term liabilities |
|
|
(2.0) |
(16.4) |
(9.4) |
(2.0) |
(2.0) |
(2.0) |
Net Assets |
|
|
289.0 |
239.4 |
204.1 |
222.2 |
235.5 |
232.8 |
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
23.3 |
84.2 |
102.0 |
104.6 |
107.5 |
113.0 |
Net Interest |
|
|
(24.0) |
(17.5) |
(30.9) |
(19.4) |
(14.0) |
(13.0) |
Tax |
|
|
(0.5) |
(1.2) |
(1.0) |
(3.0) |
(5.0) |
(5.0) |
Capex |
|
|
(2.5) |
(2.5) |
(3.2) |
(4.0) |
(5.0) |
(5.0) |
Acquisitions (inc earn-outs) |
|
|
(355.6) |
(156.3) |
(94.2) |
(70.0) |
(5.0) |
(5.0) |
Financing |
|
|
203.7 |
(29.6) |
22.2 |
0.0 |
0.0 |
0.0 |
Dividends |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
(14.9) |
(33.4) |
Net Cash Flow |
|
|
(155.6) |
(122.9) |
(5.2) |
8.2 |
63.6 |
51.6 |
Opening net debt/(cash) |
|
|
27.1 |
182.7 |
305.6 |
310.7 |
302.5 |
238.9 |
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) |
|
|
182.7 |
305.6 |
310.7 |
302.5 |
238.9 |
187.3 |
NPV of outstanding earnouts/ other |
|
209.5 |
140.8 |
76.6 |
15.0 |
5.0 |
0.0 |
Currency swaps |
|
|
(4.7) |
(38.2) |
0.0 |
0.0 |
0.0 |
0.0 |
Adjusted net debt |
|
|
387.5 |
408.1 |
387.3 |
317.5 |
243.9 |
187.3 |
Source: Company accounts, Edison Investment Research
Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Jackpotjoy plc 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Jackpotjoy plc 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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