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Research: Consumer
Gamesys Group’s Q320 trading update is ahead of expectations with pro forma revenue growth of 31% and an improved financial position. As in previous quarters, the company increased the active player base responsibly and benefitted from new game launches. We increase our revenue forecasts for FY20–22 by 5.7–7.0%, and EBITDA forecasts by a slightly lower 2–3% as management further invests in growing a sustainable and repeatable business, while ensuring revenue growth is done responsibly. This follows an EBITDA upgrade of 7.8% for FY20 at the time of the interim results. For FY21e, the free cash flow yield is 9.2% and the dividend yield is 2.9%.
Gamesys Group |
Strong trading continued in Q320 |
Q320 trading update |
Travel & leisure |
20 October 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 Q320 trading update is ahead of expectations with pro forma revenue growth of 31% and an improved financial position. As in previous quarters, the company increased the active player base responsibly and benefitted from new game launches. We increase our revenue forecasts for FY20–22 by 5.7–7.0%, and EBITDA forecasts by a slightly lower 2–3% as management further invests in growing a sustainable and repeatable business, while ensuring revenue growth is done responsibly. This follows an EBITDA upgrade of 7.8% for FY20 at the time of the interim results. For FY21e, the free cash flow yield is 9.2% and the dividend yield is 2.9%.
Year end |
Revenue (£m) |
EBITDA* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
319.6 |
112.7 |
118.5 |
0.0 |
11.1 |
N/A |
12/19 ** |
565.3 |
158.9 |
100.4 |
0.0 |
13.1 |
N/A |
12/20e ** |
719.3 |
193.3 |
126.0 |
36.0 |
10.4 |
2.7 |
12/21e ** |
768.9 |
213.8 |
145.3 |
37.8 |
9.1 |
2.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. ** Pro forma figures
Q320: Strong growth and improving financial position
Gamesys Group’s pro forma revenue growth in Q320 of 31% to £190m highlights that it continues to enjoy very strong momentum. This follows growth of 27.2% during H120, with 19% growth in Q120, and 35% growth in Q220 that was helped by home-based working, the closure of land-based gaming premises, and a lack of sports betting due to COVID-19. Growth was driven by an increase in active customers and new product launches in key markets, notably Spain (Monopoly Casino), the UK (Rainbow Riches Casino) and Japan (Intercasino). Geographically, growth rates appear broadly consistent with those of Q220 in the key markets. The continued momentum led to an improved financial position, with net debt/adjusted EBITDA of less than 2.1x achieved during the period versus 2.27x at the end of H120.
Forecasts: Revenue increased 5%+, EBITDA by 2–3%
We increase our revenue forecasts for FY20–22 by 5.7–7.0% and our EBITDA forecasts by 2–3%, as management invests in growing nascent and new markets. For Q420, this implies a similar revenue run rate as Q320, but a lower growth rate of c 24%, reflecting a tougher comparative in Q419. We also reduce our forecast interest charge as the improving net debt position leads to a lower interest rate.
Valuation: FCF yield of 9.2% for FY21e
The share price has performed well to reward the ongoing strong momentum in the business and earnings upgrades. On our new forecasts, the P/E for FY21e is 9.1x and the EV/EBITDA is 8.5x. The free cash flow yield of 9.2% and improving financial position ensures that the dividend yield of 2.9% is attractive. Operationally, the business has no exposure to sports betting or physical locations, therefore growth should be more sustainable and stable than its peers.
Exhibit 1: Financial summary
£m |
2017 |
2018 |
2019 |
2020e |
2021e |
2022e |
||
December |
||||||||
PROFIT & LOSS |
||||||||
Revenue |
|
|
304.7 |
319.6 |
565.3 |
719.3 |
768.9 |
823.1 |
Cost of Sales |
(147.5) |
(158.9) |
(287.9) |
(381.1) |
(405.2) |
(431.5) |
||
Gross Profit |
157.2 |
160.7 |
277.4 |
338.2 |
363.7 |
391.6 |
||
EBITDA |
|
|
108.6 |
112.7 |
158.9 |
193.3 |
213.8 |
227.8 |
Operating Profit (before amort. and except.) |
|
108.2 |
112.2 |
140.9 |
175.3 |
195.8 |
209.7 |
|
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 |
95.9 |
116.4 |
130.3 |
||
Net Interest |
(30.0) |
(19.5) |
(21.4) |
(23.0) |
(20.0) |
(18.0) |
||
Profit Before Tax (norm) |
|
|
78.2 |
92.7 |
119.5 |
152.3 |
175.8 |
191.7 |
Profit Before Tax (FRS 3) |
|
|
(65.8) |
18.5 |
44.2 |
72.9 |
96.4 |
112.3 |
Tax |
(0.7) |
(0.5) |
(2.9) |
(15.2) |
(17.6) |
(19.2) |
||
Profit After Tax (norm) |
77.5 |
92.3 |
116.5 |
137.1 |
158.2 |
172.6 |
||
Profit After Tax (FRS 3) |
(66.5) |
18.1 |
41.3 |
57.7 |
78.8 |
93.2 |
||
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 |
126.1 |
145.4 |
158.5 |
||
EPS - normalised (p) |
|
|
103.9 |
118.5 |
100.4 |
126.0 |
145.3 |
158.3 |
EPS - (IFRS) (p) |
(90.0) |
19.5 |
31.2 |
53.0 |
72.4 |
85.6 |
||
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
36.0 |
37.8 |
39.7 |
||
Gross Margin (%) |
51.6 |
50.3 |
49.1 |
47.0 |
47.3 |
47.6 |
||
EBITDA Margin (%) |
35.6 |
35.3 |
28.1 |
26.9 |
27.8 |
27.7 |
||
Operating Margin (before GW and except.) (%) |
35.5 |
35.1 |
24.9 |
24.4 |
25.5 |
25.5 |
||
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 |
220.9 |
268.3 |
328.1 |
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 |
149.3 |
190.7 |
244.5 |
||
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 |
497.7 |
525.1 |
564.8 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
102.0 |
106.8 |
100.8 |
168.3 |
188.8 |
202.8 |
Net Interest |
(30.9) |
(19.5) |
(22.7) |
(23.0) |
(20.0) |
(18.0) |
||
Tax |
(1.0) |
(0.8) |
(3.0) |
(15.2) |
(17.6) |
(19.2) |
||
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) |
99.0 |
91.4 |
103.8 |
||
Opening net debt/(cash) |
|
|
305.6 |
310.7 |
287.1 |
450.3 |
351.2 |
259.8 |
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 |
351.2 |
259.8 |
156.1 |
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 |
351.3 |
259.7 |
156.0 |
|
Source: Company data, Edison Investment Research |
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Research: TMT
Allied Minds’ interim results showed progress at four of its seven portfolio companies – BridgeComm, Orbital Sidekick, Federated Wireless and Spin Memory – together c 95% of portfolio fair value. Despite progress, there was no uplift in fair value as top-up funding was committed at valuations established in 2018/19 funding rounds. This leaves latent value as, in order for deeptech companies progressing to plan, we would expect a doubling in valuation between funding rounds 12 to 18 months apart. ALM reported H120 parent cash of $29.9m, with our estimated fully diluted portfolio fair value of $175.3m. Adjusting for $5.5m of investments post period end, and three months of central costs, we estimate a fully diluted NAV per share of 62.7p. The shares trade at a 40% discount to this estimate of NAV.