Stride Gaming
Written by
Stride Gaming |
Winning market share |
AGM update |
Travel & leisure |
2 February 2017 |
Share price performance
Business description
Next events
Analysts
Stride Gaming is a research client of Edison Investment Research Limited |
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Stride’s AGM statement reports strong organic growth in real money gaming and we believe it is continuing to win market share. Our forecasts are unchanged although we have slightly adjusted the mix. We forecast 11% normalised EPS growth in FY17 and strong cash generation. The FY17 multiples look very low: the P/E is only 10.2x and EV/EBITDA is 7.3x (versus 8.0x for the peer group) despite Stride’s fully regulated status and above average growth.
Year |
Revenue (£m) |
EBITDA* |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/15 |
27.8 |
7.3 |
7.2 |
14.0 |
0.0 |
16.3 |
0.0 |
08/16 |
47.8 |
12.3 |
11.3 |
20.3 |
2.5 |
11.3 |
1.1 |
08/17e |
88.8 |
19.5 |
18.3 |
22.5 |
2.8 |
10.2 |
1.2 |
08/18e |
103.3 |
21.0 |
19.6 |
23.6 |
3.0 |
9.7 |
1.3 |
Note: *Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. EPS is diluted.
Strong RMG more than offsets weaker social
Stride achieved 31% growth in real money gaming (RMG) in FY16 and we believe the enlarged group (which includes Tarco and 8Ball from 31 August 2016) is continuing to deliver strong double-digit RMG l-f-l growth. Above average performance in a competitive market reflects its experienced management team, highly analytic data-driven approach and multi-brand strategy, as discussed in our Outlook report of 6 December. Against this, we believe that year to date revenues are down in Stride’s social gaming business. The FY16 results had already indicated that its management was focused more on profits than revenue growth during the earnout period (which runs to August 2017) and we believe that the impact of lower player numbers and marketing spend has flowed through to H117.
Our headline forecasts are unchanged
Our forecasts are unchanged, but we have adjusted the expected mix between RMG and social. News that the integrations of 8Ball, Netboost Media and the Tarco assets are progressing well is encouraging, as they were material acquisitions and doubled Stride’s share of the online bingo market from 5% to 10%.
Valuation: FY17 EV/EBITDA only 7.3x
Stride’s shares have fallen from c 280p last September as it has been caught up in adverse sector sentiment around the government’s triennial review of gambling stakes and prizes. However, we do not believe that it will have any material impact on Stride (it does little TV advertising and has no involvement in the betting terminals). The FY17 EV/EBITDA of 7.3x is 9% below the peer group despite Stride being a fully regulated pure online business that is delivering above average growth.
AGM update: Change to forecast mix
Our headline forecasts are unchanged from those published in our Outlook report dated 6 December but our forecast mix has shifted: we now expect lower revenue and EBITDA from the social gaming segment in FY17, offset by a better than expected contribution from RMG, with strong top-line growth and acquisition synergies flowing through. Our split is still somewhat provisional and the interims in May will provide a better guide. The reported H117 results should show very strong growth as they will include 8Ball, Netboost Media and the Tarco assets which were only acquired on the last day of the FY16 financial year.
Exhibit 1: Half-yearly results and estimates
Year end 31 August (£m) |
FY15 |
FY15P* |
FY16 |
FY17e |
FY18e |
Real money gaming (RMG) |
26.7 |
26.7 |
35.0 |
78.3 |
90.3 |
Social gaming |
1.1 |
12.6 |
12.8 |
10.5 |
13.0 |
Net gaming revenue (NGR) |
27.8 |
39.3 |
47.8 |
88.8 |
103.3 |
COS (POC gaming tax) |
(2.8) |
(3.6) |
(5.4) |
(11.8) |
(16.7) |
% of RMG NGR |
10.3% |
13.5% |
15.4% |
15.1% |
18.5% |
Gross profit |
25.1 |
35.7 |
42.4 |
77.0 |
86.6 |
Marketing cost |
(7.0) |
(9.6) |
(10.9) |
(20.5) |
(23.4) |
Marketing % |
25.2% |
24.4% |
22.8% |
23.1% |
22.7% |
Other distribution costs |
(2.9) |
(6.8) |
(7.8) |
(17.4) |
(20.4) |
Other distribution % |
10.4% |
17.4% |
16.2% |
19.6% |
19.7% |
Admin costs |
(7.8) |
(9.5) |
(11.4) |
(19.6) |
(21.8) |
Admin % |
28.2% |
24.3% |
23.9% |
22.1% |
21.1% |
Adjusted EBITDA |
7.3 |
9.7 |
12.3 |
19.5 |
21.0 |
RMG EBITDA |
7.0 |
6.2 |
8.2 |
17.0 |
17.5 |
Social gaming EBITDA |
0.3 |
3.5 |
4.1 |
2.5 |
3.5 |
Adjusted EBITDA margin |
26.3% |
24.7% |
25.8% |
22.0% |
20.3% |
RMG EBITDA margin % |
26.4% |
23.2% |
23.5% |
21.7% |
19.4% |
Social gaming EBITDA margin % |
24.3% |
28.0% |
32.0% |
23.8% |
26.9% |
Source: Stride Gaming accounts, Edison Investment Research. Note: Pro forma as if 8Ball, Netboost Media and the Tarco assets (acquired on 31 August 2016) had been owned for the whole year.
Real money gaming
We believe that Stride is achieving strong double-digital growth in l-f-l revenues as it has taken market share from operators such as Sun Bingo and Mecca (both of which have been affected by platform migrations) and probably also GVC’s Foxy Bingo (as management has focused on the bwin integration). The acquisitions doubled its share of the UK online bingo-led market from 5% to 10%, giving it much better scale and liquidity, with its multi-brand strategy enabling it to target broader demographics and cross-sell to lapsing players.
Social gaming (InfiApps)
Stride’s social gaming daily average revenue per paying player (ARPPU) increased by 22% in FY16, yet l-f-l revenues only increased by 1.8% and constant currency revenues slipped 6% implying that player numbers were down. We believe that its management focused more on profitability than revenues during the earnout period, and that the impact of lower player numbers and marketing spend has flowed through into the first half of FY17. The earnout runs to August 2017 (4x FY17 EBITDA will be payable in cash) and we believe that management has already re-energised the marketing. We will have a much better idea of progress in May, but note that the acquisition has already been usefully accretive, having generated £4.1m of adjusted EBITDA in FY16 versus an acquisition cost of £14.4m ($22m) plus cash earnout paid in H117, which we estimate at £3.8m.
Exhibit 2: Financial summary
£m |
2014 |
2015 |
2016 |
2017e |
2018e |
||
August |
UK GAAP |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
8.5 |
27.8 |
47.8 |
88.8 |
103.3 |
Cost of Sales |
0.0 |
(2.8) |
(5.4) |
(11.9) |
(16.7) |
||
Gross Profit |
8.5 |
25.1 |
42.4 |
76.8 |
86.5 |
||
EBITDA |
|
|
1.2 |
7.3 |
12.3 |
19.5 |
21.0 |
Operating Profit (norm) |
|
|
1.2 |
7.3 |
12.0 |
18.7 |
20.0 |
Amortisation of acquired intangibles |
(0.3) |
(2.5) |
(4.2) |
(9.0) |
(9.0) |
||
Exceptionals |
(0.1) |
(3.3) |
(5.1) |
(5.0) |
0.0 |
||
Share based payments |
0.0 |
(1.0) |
(1.9) |
0.0 |
0.0 |
||
Operating Profit |
0.8 |
0.4 |
0.8 |
4.7 |
11.0 |
||
Net Interest |
0.0 |
(0.1) |
(0.7) |
(0.4) |
(0.4) |
||
Profit Before Tax (norm) |
|
|
1.2 |
7.2 |
11.3 |
18.3 |
19.6 |
Profit Before Tax (FRS 3) |
|
|
0.8 |
0.4 |
0.1 |
4.3 |
10.6 |
Tax (reported) |
0.0 |
0.1 |
(0.5) |
(1.2) |
(1.6) |
||
Profit After Tax (norm) |
1.2 |
6.2 |
10.9 |
17.1 |
18.0 |
||
Profit After Tax (FRS 3) |
0.8 |
0.4 |
(0.4) |
3.1 |
9.0 |
||
Average Number of Shares Outstanding (m) |
31.2 |
43.8 |
51.5 |
67.4 |
70.0 |
||
EPS - normalised (p) |
|
|
0.0 |
14.2 |
21.2 |
25.3 |
25.7 |
EPS - normalised fully diluted (p) |
|
|
4.0 |
14.0 |
20.3 |
22.5 |
23.6 |
EPS - (IFRS) (p) |
|
|
0.0 |
0.9 |
(0.8) |
4.5 |
12.9 |
Dividend per share (p) |
0.00 |
0.00 |
2.50 |
2.80 |
3.00 |
||
Gross Margin (%) |
100.0 |
90.1 |
88.7 |
86.6 |
83.8 |
||
EBITDA Margin (%) |
14.6 |
26.3 |
25.8 |
21.9 |
20.3 |
||
Operating Margin (before GW and except.) (%) |
14.6 |
26.1 |
25.0 |
21.0 |
19.4 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
0.1 |
37.1 |
78.7 |
77.2 |
75.5 |
Intangible Assets |
0.0 |
36.4 |
73.6 |
72.0 |
70.0 |
||
Tangible Assets |
0.0 |
0.2 |
0.7 |
0.8 |
1.0 |
||
Investments |
0.1 |
0.5 |
4.4 |
4.4 |
4.5 |
||
Current Assets |
|
|
5.7 |
11.7 |
27.1 |
31.9 |
38.2 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
5.7 |
4.2 |
5.8 |
6.4 |
7.0 |
||
Cash |
0.0 |
7.4 |
21.1 |
25.5 |
31.2 |
||
Other |
0.0 |
0.0 |
0.2 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(1.2) |
(7.7) |
(26.1) |
(20.6) |
(19.7) |
Creditors |
(0.8) |
(5.2) |
(16.3) |
(18.6) |
(17.5) |
||
Player balances |
(0.4) |
(1.4) |
(1.8) |
(2.0) |
(2.2) |
||
Short term borrowings |
0.0 |
(1.1) |
(8.0) |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
0.0 |
(10.2) |
(10.5) |
(15.5) |
(10.5) |
Long term borrowings |
0.0 |
(8.0) |
0.0 |
(8.0) |
(8.0) |
||
Other long term liabilities |
0.0 |
(2.2) |
(10.5) |
(7.5) |
(2.5) |
||
Net Assets |
|
|
4.6 |
30.8 |
69.2 |
73.0 |
83.5 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
0.0 |
4.6 |
14.4 |
13.5 |
19.9 |
Net Interest |
0.0 |
0.0 |
(0.6) |
(0.4) |
(0.3) |
||
Tax |
0.0 |
(0.1) |
(0.7) |
(1.0) |
(1.4) |
||
Capex |
0.0 |
(0.6) |
(1.9) |
(2.1) |
(2.3) |
||
Acquisitions/disposals |
0.0 |
(18.1) |
(22.2) |
(4.0) |
(18.4) |
||
Financing |
0.0 |
10.4 |
25.9 |
0.0 |
10.0 |
||
Dividends |
0.0 |
(3.0) |
(0.6) |
(1.8) |
(2.0) |
||
Net Cash Flow |
0.0 |
(6.6) |
14.4 |
4.2 |
5.6 |
||
Opening net debt/(cash) |
|
|
0.0 |
0.0 |
3.1 |
(11.3) |
(15.5) |
Moving in player balances |
0.0 |
1.0 |
0.0 |
0.0 |
0.0 |
||
Other adjustments |
0.0 |
2.5 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
0.0 |
3.1 |
(11.3) |
(15.5) |
(21.0) |
Source: Stride Gaming accounts, Edison Investment Research. Note: Net debt/(cash) excludes player balances.
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