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NetEnt (No_rec, TP: SEK) -

In light of Evolution’s acquisition of NetEnt, we have discontinued coverage of NetEnt. Our last published recommendation, target price and estimates should no longer be relied upon.

NetEnt (Hold, TP: SEK94.00) - Awaiting deal closure

As we near Q3 results (due at 07:30 CET on 22 October), we keep our HOLD and SEK94 target price, subsequent to our views on Evolution Gaming (EG) after its all-share bid for NetEnt. We expect Q3 revenue growth of >20% and EBITDA growth of >40% YOY, driven by a strongly performing Red Tiger and cost synergies. The UK authority is reviewing the potential EG/NetEnt combination and the acceptance period for NetEnt shareholders ends on 30 October.

NetEnt (Hold, TP: SEK94.00) - Feeling the force of Evolution

We have raised our target price to SEK94 (55), subsequent to our views on Evolution Gaming (EG), and have downgraded to HOLD (BUY). These changes follow decent Q2 results, a healthy near-term earnings outlook (cost synergies from the Red Tiger acquisition), our new estimates (2021–2022 adj. EPS up 6–8%), and our views that EG’s acquisition of NetEnt should be final in H2.

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Northern Lights

NetEnt (Buy, TP: SEK55.00) - Returning to organic growth

We reiterate our BUY and have raised our target price to SEK55 (45) as we are turning more positive on NetEnt’s ability to return to profitable organic revenue growth in 2020 – which should trigger multiples expansion. In addition to a favourable environment for online casinos, key catalysts include the new live casino focus, US growth prospects and the Red Tiger acquisition.

Online slots in a sweet spot

The Covid-19 crisis has put temporary pressure on the sector as a result of postponed or cancelled sports events – but for online casinos we expect a positive impact. An interesting aspect is that the sizeable land-based gaming market (c75% of Europe’s total) should be under termimal pressure now, leading to accelerating online migration. Our top picks are the stocks with the largest tilt towards online casino, i.e. NetEnt, LeoVegas and Betsson.

UEFA Euro championship delayed

This latest delay and postponements of sports events leave few betting events in sports-books. The larger the betting exposure, the larger cuts we expect to consensus 2020e earnings. Conversely, we believe online casinos should hold up relatively well, (revenues coming from online casino: Kindred ~50%, Betsson ~70%, LeoVegas ~90%, NetEnt/Evolution 100%). Suspended/postponed events are a key near-term negative, but still temporary. This and the resilient online casino case make us believe the onl...

NetEnt (Buy, TP: SEK40.00) - The incumbent with its tiger

After a poor 2019, the start of 2020 was a small improvement (organic revenue c-5% YOY QTD versus -13% in Q4). We expect more tangible improvements in 2020 driven by new games, Red Tiger, product initiatives, the new live casino, and healthier market progress (in Sweden and the UK, for example). We keep our BUY and SEK40 target price.

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NetEnt (Buy, TP: SEK40.00) - Stabilising market share

Thanks to the Red Tiger acquisition, and despite an organic revenue drop, we expect Q4 revenue to be up 16% YOY. However, according to our proprietary casino study, NetEnt’s implied market share is stabilising and we expect healthier organic revenue for 2020. Even the smallest sign of improvement should trigger a re-rating of the shares. We reiterate our BUY and SEK40 target price (Q4 results due at 07:30 CET on 12 February).

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Northern Lights

NetEnt (Buy, TP: SEK40.00) - Staking out organic growth

Our proprietary casino study shows NetEnt’s organic market share is finally stabilising YOY (and was even up slightly in November). We believe investors are solely focused on the poor organic revenue trend, so even the smallest sign of an improvement should trigger a re-rating of the shares. We maintain our BUY and have raised our target price to SEK40 (35).

October Swedish gaming tax

For the third consecutive month, October showed strong progress for state-owned betting incumbent Svenska Spel. Kindred and LeoVegas also performed well (up c20% MOM) while Bet365 and Cherry underperformed (down c20% MOM). Notably, the ‘Ten challengers’ recovered somewhat on the back of improvements from Videoslots and Mandalorian Technologies. In general, the October figures followed our expectations of normal seasonal patterns (Q4 being the strongest quarter in gambling). We expect the Swe...

Comment on the APPG report

After the recent GBP2 stake limit introduced for FOBTs in the UK, an informal UK parliamentary group is now calling for stake limits on online gambling products (in a report partly funded by land-based casinos). Most of the leading Nordic operators and game providers are exposed to the UK, a market generally seen as a bellwether for gambling regulation, we believe. Potential further restrictions on licensed online gambling are likely to come with medium-term earnings risk. We question how much o...

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NetEnt (Buy, TP: SEK35.00) - Red Tiger set to aid growth

NetEnt struggled with poor organic growth in Q3, but the Red Tiger (RT) acquisition is set to provide a material boost ahead. In addition, small signs of momentum in organic growth – for example driven by a stabilising Nordic market, new games, an accelerating US market and live casino – should be recognised by the markets. We have trimmed our target price to SEK35 (36) on our new estimates, and reiterate our BUY.

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.