Stride Gaming
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Stride Gaming |
Positive update – InfiApps integration going well |
Trading update |
Travel & leisure |
9 February 2016 |
Share price performance
Business description
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Analysts
Stride Gaming is a research client of Edison Investment Research Limited |
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Stride released a trading update with its 5 February AGM. The company reported that trading in the early part of the financial year (August year end) has started well and is in line with management expectations. Particular attention was paid to its July 2015 social gaming acquisition, InfiApps, the performance of which Stride’s management reports it is "delighted" with. The company has restated its commitment to its ‘buy and build’ strategy to supplement its positive organic growth.
Year end |
Revenue (£m) |
EBITDA* |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/14 |
8.5 |
1.2 |
1.2 |
4.0 |
0.0 |
N/A |
N/A |
08/15 |
27.8 |
7.3 |
7.2 |
14.0 |
0.0 |
17.3 |
N/A |
08/16e |
45.0 |
11.3 |
10.1 |
16.3 |
0.0 |
14.9 |
N/A |
08/17e |
48.8 |
12.8 |
11.3 |
18.1 |
0.0 |
13.4 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Solid early FY16e trading – forecasts unchanged
Our December 2015 initiation report forecast 62% y-o-y revenue growth in FY16e to £45.0m, with EBITDA rising from £7.3m in 2015 to £11.3m. This includes the first full-year contribution from InfiApps. Stripping out the effect of InfiApps, we forecast underlying growth of 16% in the core real money business. Although unchanged, our confidence in our forecasts is bolstered by management’s positive update.
Organic growth supplemented by M&A
Stride specialises in ‘soft’ gambling verticals (‘bingo-led’) and social gaming. These areas are yet to see the same level of M&A activity that other parts of the online gambling industry (such as online sports betting) have experienced over the last 12 months. We believe that the same scale benefits are applicable to online bingo as are true of online sports betting, particularly since the introduction of the UK Remote Gaming Duty in December 2014. As a result, we expect that it is more a case of when, rather than if, with respect to a higher level of M&A activity in the soft gambling space. Stride’s management has reiterated its commitment to further M&A and we anticipate that it will be among the industry’s consolidators as our M&A thesis starts to play out.
Valuation: Further expansion to drive share price
Stride’s shares performed extremely strongly following its May 2015 listing, rising from its IPO price of 132p to a peak of 325p in September. The shares have since moderated and currently trade at 240p, giving Stride an FY16e EV/EBITDA valuation of 11.2x, falling to 9.9x in FY17e. This is at the upper end of Stride’s peer group in recognition of its profitability and high cash-generation profile. Stride has clearly stated that it intends to take part in further M&A activity. We believe that further well-priced acquisitions or successful entry into a new geographic market could provide a catalyst for the company to start to re-test its 52-week highs.
Exhibit 1: Financial summary
£m |
2014 |
2015 |
2016e |
2017e |
||
Year-end 31 August |
UK GAAP |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
8.5 |
27.8 |
45.0 |
48.8 |
Cost of Sales |
0.0 |
(2.8) |
(4.3) |
(4.8) |
||
Gross Profit |
8.5 |
25.1 |
40.6 |
44.0 |
||
EBITDA |
|
|
1.2 |
7.3 |
11.3 |
12.8 |
Operating Profit (norm) |
|
|
1.2 |
7.3 |
10.7 |
11.9 |
Amortisation of acquired intangibles |
(0.3) |
(2.5) |
(4.0) |
(4.5) |
||
Exceptionals |
(0.1) |
(3.3) |
(2.5) |
(0.5) |
||
Share based payments |
0.0 |
(1.0) |
(2.9) |
(2.9) |
||
Operating Profit |
0.8 |
0.4 |
1.3 |
4.0 |
||
Net Interest |
0.0 |
(0.1) |
(0.6) |
(0.6) |
||
Profit Before Tax (norm) |
|
|
1.2 |
7.2 |
10.1 |
11.3 |
Profit Before Tax (FRS 3) |
|
|
0.8 |
0.4 |
0.7 |
3.4 |
Tax (reported) |
0.0 |
0.1 |
(0.9) |
(1.0) |
||
Profit After Tax (norm) |
1.2 |
6.2 |
9.2 |
10.2 |
||
Profit After Tax (FRS 3) |
0.8 |
0.4 |
(0.2) |
2.3 |
||
Average Number of Shares Outstanding (m) |
31.2 |
43.8 |
51.2 |
51.3 |
||
EPS - normalised (p) |
|
|
0.0 |
14.2 |
18.0 |
20.0 |
EPS - normalised fully diluted (p) |
|
|
4.0 |
14.0 |
16.3 |
18.1 |
EPS - (IFRS) (p) |
|
|
0.0 |
0.9 |
(0.4) |
4.6 |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
100.0 |
90.1 |
90.4 |
90.2 |
||
EBITDA Margin (%) |
14.6 |
26.3 |
25.2 |
26.2 |
||
Operating Margin (before GW and except.) (%) |
14.6 |
26.1 |
23.8 |
24.4 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
0.1 |
37.1 |
32.2 |
28.1 |
Intangible Assets |
0.0 |
36.4 |
31.7 |
27.6 |
||
Tangible Assets |
0.0 |
0.2 |
0.1 |
0.1 |
||
Investments |
0.1 |
0.5 |
0.5 |
0.5 |
||
Current Assets |
|
|
5.7 |
11.7 |
14.7 |
15.4 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
5.7 |
4.2 |
5.8 |
6.4 |
||
Cash |
0.0 |
7.4 |
8.9 |
9.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(1.2) |
(7.7) |
(14.6) |
(7.0) |
Creditors |
(1.2) |
(6.6) |
(6.6) |
(7.0) |
||
Short term borrowings |
0.0 |
(1.1) |
(8.0) |
0.0 |
||
Long Term Liabilities |
|
|
0.0 |
(10.2) |
0.0 |
0.0 |
Long term borrowings |
0.0 |
(8.0) |
0.0 |
0.0 |
||
Other long term liabilities |
0.0 |
(2.2) |
0.0 |
0.0 |
||
Net Assets |
|
|
4.6 |
30.8 |
32.3 |
36.5 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
0.0 |
4.6 |
8.7 |
12.1 |
Net Interest |
0.0 |
0.0 |
(0.6) |
(0.6) |
||
Tax |
0.0 |
(0.1) |
(0.9) |
(1.0) |
||
Capex |
0.0 |
(0.6) |
(1.2) |
(1.3) |
||
Acquisitions/disposals |
0.0 |
(18.1) |
(2.0) |
(1.0) |
||
Financing |
0.0 |
10.4 |
0.0 |
0.0 |
||
Dividends |
0.0 |
(3.0) |
0.0 |
0.0 |
||
Net Cash Flow |
0.0 |
(6.6) |
4.0 |
8.2 |
||
Opening net debt/(cash) |
|
|
0.0 |
0.0 |
3.1 |
(0.9) |
Moving in player balances |
0.0 |
1.0 |
0.0 |
0.0 |
||
Other adjustments |
0.0 |
2.5 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
0.0 |
3.1 |
(0.9) |
(9.0) |
Source: Edison Investment Research, Stride Gaming. Note: *2015 dividend was a pre-IPO distribution as part of the group reorganisation. Stride Gaming began operating in 2012 and acquired Top Table Entertainment in September 2014.
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