September Swedish gaming tax

September showed solid progress for state-owned betting incumbent Svenska Spel while Kindred and LeoVegas’s recent positive trends were reversed. Looking ahead, we expect 1) more signs that the Swedish market is concentrating towards leading brands; and 2) in addition to high season for gaming, the recent closure of unlicensed operator Mobilebet could support the licensed market and brands such as LeoVegas, Kindred, and Betsson.

Northern Lights

LeoVegas (Buy, TP: SEK52.00) - Back to earnings growth

We expect EBITDA growth to return from H2 (25% in Q3e), which is quite an achievement given the sizeable Swedish exposure (18% revenue tax since 1 January). We believe healthy growth in Sweden, Rest of Europe and World coupled with better cost control more than offset the still-challenging UK business. Further signs that LeoVegas is executing well in absorbing the rising duties/gaming tax should support the share price and we reiterate our BUY and SEK52 target price.

Evolution (Buy, TP: SEK1700.00) - Fundamentals in the right direction

According to our tracker, Evolution’s strong trading has continued more than halfway into Q2, with H1 player volumes up c40% YOY and 6% MOM so far in May. Given the strong fundamentals and support from our data, we believe that the weak share price gives a good buying opportunity. In June Evolution plans to launch ‘Lightning Storm’ (likely its largest launch ever), and finally we note that our player data correlates almost exactly with the company’s own ‘Game Rounds Index’. We reiterate our BUY and SEK1,700 target price.

Billerud (Buy, TP: SEK140.00) - Keeping profits, avoiding capex

We believe Billerud’s announcement to pursue a more cautious investment strategy in the US could reduce its capex needs by cSEK5bn–7bn. Moreover, we believe the risk in our optimistic scenario has diminished, due to market improvements and recent price rises on key products. We reiterate our BUY and have increased our target price to SEK140 (130) also reflecting the balance sheet turning increasingly overcapitalised, which should raise expectations of excess-cash distribution.

Valuation update

In this note, we show updated valuation statistics for the E&P sector.