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.

August Swedish gaming tax figures

August was the third consecutive month with signs that the Swedish market is concentrating towards the leading brands. In the long-term, such a trend should support leading licensed operators such as Kindred and LeoVegas, which experienced a stable MOM progress in August compared to a c10% drop for the aggregate of challenger brands, according to the data.

July Swedish gaming tax figures

According to the latest gaming tax data from the Swedish Tax Authority (including data for all ~70 licensees), July was the second consecutive month with signs that the Swedish market is concentrating towards the leading brands, partly explained by the shutdown of Ninja Casino in June. Kindred and LeoVegas, with an estimated 10% and 20% of group revenue from Sweden, respectively, experienced decent progress in the low-season period July, we believe.

LeoVegas (Buy, TP: SEK52.00) - Returning to EBITDA growth YOY

In light of stable Q2 EBITDA YOY (35% above consensus) despite the Swedish gaming tax; Nordic market share gains; 26% organic revenue growth YOY outside the UK; and improving marketing ROI – we retain our view that LeoVegas will return to EBITDA growth YOY in H2. We have raised our forecast slightly and keep our BUY with a new SEK52 (51) target price.

Northern Lights

LeoVegas (Buy, TP: SEK51.00) - Hakuna matata at Swedish Tax Authority

Based on official monthly gaming tax data from the Swedish Tax Authority, we believe June was LeoVegas’s fifth consecutive month of MOM revenue growth in Sweden. We find this a key positive given the low-season summer period for gaming. LeoVegas probably benefited from the shutdown of competitor Ninja casino in mid-June and we believe the data supports our positive view on the LeoVegas stock ahead of its Q2 results (due at 08:00 CET on 14 August).

LeoVegas (Buy, TP: SEK51.00) - Growth story fighting its way back

Approaching the Q2 figures (due at 08:00 CET on 14 August), we have raised our 2019e EBITDA by 6% and our target price to SEK51 (47). We expect a material EBITDA improvement QOQ thanks to slight revenue growth coupled with healthier costs (healthier marketing ROI and stable personnel costs). Our forecast is above consensus; we see substantial upside potential in the shares and maintain our BUY.

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Svenska Spel lunch takeaways

We hosted a lunch in Stockholm today with the state-owned leading Swedish gambling operator Svenska Spel. Overall, our key takeaways were tilted to the positive regarding the market growth outlook: 1) the newly regulated Swedish market should soon stabilise after a very challenging start; 2) the number of licensees in the market does not appear sustainable, implying a market share shift to the established companies (from the many small challengers); finally, we conclude that sizeable Svenska Spe...

Northern Lights

LeoVegas (Buy, TP: SEK47.00) - Regulators’ circus is not the end

After the relief rally on reporting day, we continue to see plenty of near-term upside in LeoVegas shares. We expect them to be driven by EBITDA improvements throughout 2019 based on average quarterly revenue growth of c10% YOY and tighter cost control – which was visible in Q1. We have left our adj. EPS and FCF fairly intact and keep our BUY and SEK47 target price.

Northern Lights

LeoVegas (Buy, TP: SEK47.00) - Recovery potential further out

We expect a tough Q1 (results due 2 May at 08:00 CET) with only limited organic revenue growth and EBITDA down c40% YOY due to weakness in LeoVegas’s two largest markets, Sweden (re-regulation) and the UK. We have lowered our 2019e EBITDA by 6% and our target price to SEK47 (49), but maintain our BUY. We expect a recovery in H2 2019 due to more stable Swedish and UK markets coupled with healthier opex YOY.

Northern Lights

LeoVegas (Buy, TP: SEK49.00) - About to turn a corner

Following the Q4 results and upbeat trading update, we have upgraded our recommendation to BUY (HOLD) and left our SEK49 target price intact. The UK and Sweden are challenging markets, but we believe LeoVegas is growing rapidly in the rest of Europe. We have raised our 2019–2020e EPS slightly and are now >10% above consensus. Our 2021e EBITDA is 32% below the company’s EUR100m target.

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Northern Lights

LeoVegas (Buy, TP: SEK51.00) - A lion with a leash

After the Q3 disappointment with lower player value relating to stricter compliance and responsible gaming focus, we have cut our 2019e EBITDA by c20%. LeoVegas’s proactive measures in this important area of gaming should, however, support its long-term competitiveness and we reiterate our view that it is well prepared for the re-regulation trend. We have cut our target price to SEK51 (70) but maintain our BUY.