Gaming Realms - Valuation Update

Gaming Realms is a creator and licensor of innovative games for mobile, with operations in the UK, U.S. and Canada. Flagship brand Slingo® is a highly popular and unique game genre which combines elements of slot, bingo and table gameplay. These games are licensed by some of the biggest online gaming operators in the world, including DraftKings, Sky Betting & Gaming and GVC, and distributed directly to operators or via global partners such as Scientific Games & Relax Gaming using the company's proprietary Remote Game Server platform.

• Interims show revenue growth of 66% and a substantial EBITDA profit

  Results for the six months to 30th June 2020 showed revenues up by 66% to £5.2 million. The company benefitted from the effects of the COVID-19 inspired lockdown, along with growth from partners signed up over the past 12 months. Adjusted EBITDA went from a loss of £0.1 million in H1 2019 to a profit of £1.24 million, demonstrating the company’s strong operational leverage.

• Licensing drives growth, with Social Publishing also on the up

  The numbers were again driven by the core Licensing division, with revenues up by 104% to £3.4 million due to an increase in distribution and an expanded games portfolio. The Social Publishing division, previously considered as non-core, put in a good performance by growing revenues by 29% to £1.8 million. Strong growth has continued since the period end, with Licensing revenues up by 140% in July and August and Social revenues up by 56%.

• U.S. offers further growth opportunities as states regulate gambling

  In H1, 56% of sales came from the U.S., with the market expected to grow at a compound rate of 17% from 2020 to 2025, rising to a value of $6.1 billion by 2025. In New Jersey, where the company already has an operating licence, revenues grew by 94.7% year-on-year. Subject to regulatory approvals, Gaming Realms expects to be licensing its games in Pennsylvania by the start of 2021 followed by Michigan and further states thereafter as and when they regulate.

• Peer derived multiple gives a target price 67% ahead of current levels

  Our chosen peers trade on an average historic EV/EBITDA multiple of 30.8 times. Adding a small cap discount of 20% and applying this multiple to our 2022 forecasts implies an equity valuation of £141.4 million for Gaming Realms. Discounted back to the end of 2020 at a rate of 12% derives a price per share of 39.4p, implying upside of 67% from the current price. We update coverage and retain our stance of Conviction Buy.