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Research: Consumer
Gamesys Group’s interim results reporting pro forma adjusted EBITDA growth of 17% exceeded consensus expectations, demonstrating the strength of its strategy of growing the player base responsibly, while aiming for a high player retention rate. The improving financial position has resulted in the introduction of a new dividend (company commentary implies 36p/share for FY20) earlier than anticipated by us and consensus. We have increased our FY20 EBITDA forecast by 7.8%.
Gamesys Group |
Strong performance delivers unexpected return |
H120 results |
Travel & leisure |
11 August 2020 |
Share price performance
Business description
Next events
Analysts
Gamesys Group is a research client of Edison Investment Research Limited |
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Gamesys Group’s interim results reporting pro forma adjusted EBITDA growth of 17% exceeded consensus expectations, demonstrating the strength of its strategy of growing the player base responsibly, while aiming for a high player retention rate. The improving financial position has resulted in the introduction of a new dividend (company commentary implies 36p/share for FY20) earlier than anticipated by us and consensus. We have increased our FY20 EBITDA forecast by 7.8%.
Year end |
Revenue (£m) |
EBITDA* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
319.6 |
112.7 |
118.5 |
0.0 |
8.7 |
N/A |
12/19** |
565.3 |
158.9 |
100.4 |
0.0 |
10.2 |
N/A |
12/20e** |
680.7 |
189.5 |
122.0 |
36.0 |
8.4 |
3.5 |
12/21e** |
725.0 |
208.7 |
140.2 |
37.8 |
7.3 |
3.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma figures.
H120: Ahead of expectations and cash return
H120 pro forma revenue increased by 27% to £340m with growth trends accelerating in Q220 to 35% vs 19% in Q120, driven by an improvement in the UK (up 16%) and Asia (92%), which are 87% of group revenue; there was some weakness in Sweden and the Nordics. The strategy of increasing the number of players delivered 14% growth y-o-y. Pro forma adjusted EBITDA increased by 17% as relatively higher investment (vs revenue) in marketing and staff for future growth was offset by lower content licensing. The profit growth and high cash conversion (106%) gave an improved net debt position of £391.7m (2.27x net debt/EBITDA vs 2.83x at end-FY19) enables the introduction of a dividend (ahead of consensus expectations) of 12p/share, with an indicated interim/final split of 1/3:2/3 and a ‘progressive’ dividend policy.
FY20 estimates: EBITDA increased by 7.8%
We have increased our FY20 revenue estimate by 13.1% to £680.7m and EBITDA by 7.8% to £189.5m, which represents y-o-y growth of 20.4% and 19.3% respectively. We assume some moderation in y-o-y revenue growth rates for the UK (7%) and Asia (42%) for the remainder of the year given strong comparatives, and the macroeconomic uncertainty due to COVID-19. Our FY20 dividend forecast of 36p is as implied by the company’s commentary and we assume the dividend will grow by 5% in FY21. Our net debt forecast of £355.6m at end-FY20 implies a net debt/EBITDA position of 1.9x. For FY21, we forecast EBITDA growth of 10.1%.
Valuation: FCF yield of 11.3% for FY21e
The share price has recovered strongly from a low of 531p in the market sell-off due to COVID-19. On our new estimates, the P/E for FY21e is 7.3x and the EV/EBITDA is 7.2x. The free cash flow yield of 11.3% in FY21e provides strong valuation support and cash cover for the forecast dividend yield of 3.7%. The group’s business exposure should ensure that its growth rates are more stable versus peers that are exposed to sports betting and have physical locations.
Exhibit 1: Financial summary
£m |
2017 |
2018 |
2019 |
2020e |
2021e |
2022e |
||
Year end 31 December |
||||||||
PROFIT & LOSS |
||||||||
Revenue |
|
|
304.7 |
319.6 |
565.3 |
680.7 |
725.0 |
769.0 |
Cost of Sales |
(147.5) |
(158.9) |
(287.9) |
(359.8) |
(381.1) |
(402.2) |
||
Gross Profit |
157.2 |
160.7 |
277.4 |
320.9 |
343.9 |
366.8 |
||
EBITDA |
|
|
108.6 |
112.7 |
158.9 |
189.5 |
208.7 |
221.4 |
Operating Profit (before amort. and except.) |
|
|
108.2 |
112.2 |
140.9 |
171.5 |
190.7 |
203.3 |
Intangible Amortisation |
(62.6) |
(60.3) |
(52.7) |
(77.0) |
(77.0) |
(77.0) |
||
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) |
(2.4) |
(2.4) |
(2.4) |
||
Operating Profit |
(60.8) |
35.0 |
64.3 |
92.1 |
111.3 |
123.9 |
||
Net Interest |
(30.0) |
(19.5) |
(21.4) |
(24.0) |
(21.0) |
(19.0) |
||
Profit Before Tax (norm) |
|
|
78.2 |
92.7 |
119.5 |
147.5 |
169.7 |
184.3 |
Profit Before Tax (FRS 3) |
|
|
(65.8) |
18.5 |
44.2 |
68.1 |
90.3 |
104.9 |
Tax |
(0.7) |
(0.5) |
(2.9) |
(14.7) |
(17.0) |
(18.4) |
||
Profit After Tax (norm) |
77.5 |
92.3 |
116.5 |
132.7 |
152.7 |
165.9 |
||
Profit After Tax (FRS 3) |
(66.5) |
18.1 |
41.3 |
53.3 |
73.3 |
86.5 |
||
Average Number of Shares Outstanding (m) |
73.9 |
74.2 |
108.7 |
108.7 |
108.8 |
108.9 |
||
EPS |
104.9 |
119.5 |
100.4 |
122.1 |
140.4 |
152.3 |
||
EPS - normalised (p) |
|
|
103.9 |
118.5 |
100.4 |
122.0 |
140.2 |
152.2 |
EPS - (IFRS) (p) |
(90.0) |
19.5 |
31.2 |
49.1 |
67.4 |
79.4 |
||
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
36.0 |
37.8 |
39.7 |
||
Gross Margin (%) |
51.6 |
50.3 |
49.1 |
47.1 |
47.4 |
47.7 |
||
EBITDA Margin (%) |
35.6 |
35.3 |
28.1 |
27.8 |
28.8 |
28.8 |
||
Operating Margin (before GW and except.) (%) |
35.5 |
35.1 |
24.9 |
25.2 |
26.3 |
26.4 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
595.9 |
521.9 |
1,045.6 |
968.6 |
893.6 |
818.6 |
Intangible Assets |
589.0 |
514.7 |
1,008.7 |
940.7 |
873.7 |
806.7 |
||
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 |
216.6 |
258.5 |
311.6 |
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 |
144.9 |
180.9 |
228.0 |
||
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 |
493.3 |
515.3 |
548.4 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
102.0 |
106.8 |
100.8 |
164.5 |
183.7 |
196.4 |
Net Interest |
(30.9) |
(19.5) |
(22.7) |
(24.0) |
(21.0) |
(19.0) |
||
Tax |
(1.0) |
(0.8) |
(3.0) |
(14.7) |
(17.0) |
(18.4) |
||
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 |
(13.0) |
(39.8) |
(41.8) |
||
Net Cash Flow |
(5.2) |
23.6 |
(163.2) |
94.7 |
85.9 |
97.1 |
||
Opening net debt/(cash) |
|
|
305.6 |
310.7 |
287.1 |
450.3 |
355.6 |
269.6 |
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 |
355.6 |
269.6 |
172.5 |
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 |
355.6 |
269.6 |
172.5 |
Source: Company accounts, Edison Investment Research
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Research: Investment Companies
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