Evolution (Buy, TP: SEK1700.00) - Live buying opportunity

We reiterate our BUY and SEK1,700 target price after healthy but in-line Q1 results (Live revenue growth >25% YOY at constant FX). In our view, the weak share price despite a healthy start to the year, promising new games pipeline, high-conviction growth outlook (growth investments, e.g. recruitment), and long-awaited Live dealer contract with leading operator bet365 offers a solid buying opportunity.

Set for acceleration

Expansion investments weigh on Q1 margin, but great setup for solid outlook for remainder of '24e. Keep BUY — 17-14x '25e-'26e P/E and >5% FCF yield

Bet365 signing proving Evo's strength

Evolution (Buy, TP: SEK1700.00) - Continued strong start to 2024

According to our tracker, the positive trend that we identified in Q1 (stabilising YOY growth after a period of deceleration) has continued in Q2: total daily average players has grown by 10% QOQ, corresponding to >35% YOY. We believe the strong trend YTD implies upside potential to our forecasts and consensus for Q1–Q2 Live revenue growth of 6–4% QOQ. Evolution continues to widen the gap to competition and we believe stabilising Live revenue growth YOY should prompt a share price re-rating.

Evolution (Buy, TP: SEK1700.00) - Q1e revenue of EUR500m

We reiterate our BUY and SEK1,700 target price ahead of the Q1 results (due at 07:30 CET on 24 April). We see re-rating potential from e.g. stabilising Live revenue growth YOY (c25% YOY in Q1e at constant currency), confirmed by our proprietary tracker data, and an improving cash distribution story. Notable upcoming new Live game releases include ‘Lightning Storm’, which we believe is scheduled for late Q2.

Evolution (Buy, TP: SEK1700.00) - Flagging a trend shift

After two years of slowing growth in Live revenue and daily players (from very high levels), we see more encouraging trends YTD. According to our tracker, Evolution’s total daily average players are up 15% QOQ QTD (2–3% in Q3–Q4 2023), while YOY growth has stabilised at >30%. Our data also suggests that Evolution has maintained its superior market share, which, overall, increases our conviction in the growth outlook. We reiterate our BUY and SEK1,700 target price.

Evolution (Buy, TP: SEK1700.00) - Stabilising Live growth is promising

In light of healthier Live revenue growth trends than we expected, promising signs of stabilising Live revenue growth YOY, and intact estimates, we have raised our target price to SEK1,700 and reiterate our BUY. In our view, more successful expansion (new studios and step-up in recruitment), new games development, and potential re-regulation in key markets (e.g. the US, Latin America) increase the likelihood of a re-rating this year.

Evolution (Buy, TP: SEK1640.00) - Needs to stabilise the Live growth

We expect Q4 Live revenue to be up 20% YOY with a 70.2% EBITDA margin, with stepped-up recruitment to face the rising demand. Next, management needs to prove that the Live revenue growth can stabilise and not decelerate more in 2024. With a credible plan, structural growth tailwind, market leadership, sizeable expansion and continued focus on the expansion of Live games, we reiterate our BUY and SEK1,640 target price.

Evolution (Buy, TP: SEK1640.00) - Dealing with the expansion

We reiterate our BUY but have lowered our target price to SEK1,640 (1,725), reflecting 2–5% cuts to our 2023–2024e revenue. Underlying demand for Evolution’s Live casino is growing rapidly, and management is addressing the ‘undersupply situation’, e.g. with 6–7 new studios opening between H2 2023 and end-2024. The cash flow generation continues to impress, and we believe the potential for buybacks has increased for the near term (EUR1.1bn cash at end-2023e).

Evolution (Buy, TP: SEK1725.00) - Could improve growth execution

We forecast Q3 Live revenue up 26% YOY and a YTD EBITDA margin at the upper end of the 2023e guidance. The near-term revenue growth execution could improve a bit, but the recent poor share price movement has created a good buying opportunity, in our view. The outlook remains intact: structural growth, expansion, unrivalled market position and management execution. We reiterate our BUY and SEK1,725 target price ahead of the Q3 results (due at 07:30 CET on 26 October).

Evolution (Buy, TP: SEK1725.00) - Comforting summer tracker trends

According to our tracker, Evolution’s daily average players have grown by a healthy 9% QOQ so far in Q3, driven by Roulette. Halfway into Q3, we conclude that our tracker data adds comfort, or even slight upside risk, to our and consensus Live revenue growth forecast of 5–6% QOQ. The new Game Show ‘Funky Time’ continues to grow steadily, and next, Evolution will step up the release of new games in H2, including key titles like ‘Lightning Lotto’ and ‘XXXtreme Lightning Baccarat’.

Northern Lights

Evolution (Buy, TP: SEK1725.00) - Pleasant capacity problems

We reiterate our BUY but have cut our target price to SEK1,725 (1,750), after trimming our 2024e EBITDA by 2%. Evolution is undersupplying the market a bit: while it signals that execution could improve, this bodes well for growth. The efficiency and margin delivery (2023e EBITDA margin of 70%+) are positives and there are meaningful growth catalysts ahead, e.g. more capacity, launch of new tables, studios and product rollouts.

Evolution (Buy, TP: SEK1750.00) - Resilient Live growth trends

We expect Evolution to report still-healthy EBITDA and Live revenue growth of 30–35% YOY, respectively, for Q2 (results due at 07:30 CET on 21 July). We forecast Live casino to show continued resilience to tougher macro trends; our proprietary tracking tool implies mid-single-digit QOQ player volume growth for Evolution in Q2. We have only fine-tuned our estimates and reiterate our BUY recommendation and SEK1,750 target price.

Northern Lights

Evolution (Buy, TP: SEK1750.00) - Solid start to ‘Funky Time’

According to our tracker, Evolution’s daily average players have increased by 4% QOQ so far in Q2 (59% YOY) driven by Baccarat and Roulette. Roulette has returned to a growth path, rising 6% QOQ so far in Q2 after declining in Q1. Evolution’s new game show ‘Funky Time’ was launched with select Evolution clients on 10 May, and is showing promising early performance with nearly c2,000 daily average players ahead of the full launch later in the month (24 May). We also note that in Q1, reported Live...

Evolution (Buy, TP: SEK1750.00) - 36% Live growth before Funky Time

We reiterate our BUY and SEK1,750 target price after a healthy Q1, with 36% Live revenue growth YOY. We have edged up our EBITDA forecast and look for similar growth in Q2e, supported by the April data in our player tracker. In mid-May, Evolution is set to release the biggest-ever online casino game show, Funky Time. We continue to have strong confidence in Evolution’s product innovation and remain above consensus.

Northern Lights

Evolution (Buy, TP: SEK1750.00) - New Game Shows in focus for Q2

According to our tracker, Evolution’s daily average players increased 8% QOQ in Q1 (82% YOY) driven by Baccarat, probably a testament to strong Asia, we believe. We forecast Q1 Live revenue +7% QOQ (consensus at 5%) implying 35% growth YOY. In Q2, Evolution is set to launch two key new Game Shows, which could strengthen the category even further. The company continues to perform well versus competitors, according to our data.

Evolution (Buy, TP: SEK1750.00) - Steady she grows c40% YOY

We have raised our target price to SEK1,750 (1,700) and keep our BUY, having raised our 2023–2024e Live revenue growth by 1–2%-points. We expect continued healthy revenue growth in Q1 (Live: 35% YOY) and a solid quarter overall, and see further upside potential to consensus ahead of the results (due at 07:30 CET on 27 April). We also look forward to the release of ‘Funky Time’ in May, Evolution’s biggest-ever game show.