Gaming Realms
Game on for profitable growth in 2017 and beyond
Gaming Realms is a developer, publisher and licensor of mobile and web based real money and social games. The business was set up by the team behind Cashcade Limited, creator of bingo brand Foxy Bingo, which was sold to PartyGaming for just under £96 million in 2009.
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Strategy focused on exploiting valuable range of IP
Gaming Realms has developed and acquired a host of popular games, including the flagship “Slingo” brand. The focus is upon exploiting this IP across its real money, social gaming and licensing divisions, with the strategy being to allocate capital towards the more profitable real money gaming and content licensing operations.
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Traction seen in trading with 2017 profitability imminent
Following a 60% rise in revenues in the 2016 financial year, followed by positive trading in the first half of 2017, the business is on the cusp of profitability. Management expect the business to be significantly EBITDA positive for FY2017 and we expect an acceleration in profits after that.
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Fundraise and deferred consideration agreement reduce uncertainty
A recent £1.13 million subscription has provided funds for growth, with several directors taking part. Crucially, a deferred consideration payment of $4 million previously due in August this year has been deferred to December, with the company currently organising debt facilities to pay the now $4.5 million liability.
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Shares undervalued on a number of metrics
Should Gaming Realms successfully meet our forecasts for 2018 and 2019 the shares would trade on very low multiples of EBITDA and, more importantly, cashflow. We set an end 2019 target price of 17.8p for the shares and initiate coverage with a Conviction Buy stance.
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DISCLAIMER
Gaming Realms is a research client of Align Research. Align Research & a Director of Align Research hold interests in the shares of Gaming Realms. For full disclaimer information please refer to the last page of the full document. This investment may not be suitable for your personal circumstances. If you are in any doubt as to its suitability you should seek professional advice. This note does not constitute advice and your capital is at risk. This is a marketing communication and cannot be considered independent research.
| Year to Dec | 2016A | 2017E | 2018E | 2019E |
|---|---|---|---|---|
| Revenues (£m) | 33.96 | 33.43 | 41.62 | 49.03 |
| Adjusted EBITDA (£m) | (1.02) | 2.00 | 4.02 | 7.74 |
| Pre-tax profit (£m) | (6.97) | (2.87) | (0.20) | 3.61 |
| EPS (p) | (2.55) | (1.03) | (0.07) | 1.27 |