Gaming Realms – Re-Initiation of Coverage
Refocusing into highly profitable licensing model and disposal of assets create significant value creation opportunities
Gaming Realms is a developer, publisher and licensor of real money and social games with operations in the UK, U.S. and Canada. The business was set up by the team behind Cashcade Ltd, 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 gaming, 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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Disposal of B2C brands provides significant cash inflow
Gaming Realms has recently sold a 70% stake in certain UK online casino B2C businesses to River UK Casino Limited (RUKC) for a total value of up to £23.1 million. The minimum payment is £8.4 million, along with a further maximum cash earn-out payment of £14.7 million. Providing significant further potential, the retained 30% stake is subject to a mutual put & call option based on an uncapped valuation of 5.5 times RUKC’s 2020 EBIT.
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Valuation suggests 148% upside
Our sum-of-the-parts based valuation is 14.55p per share, implying 148% upside from the current price of 5.875p. However, we use what we consider to be very conservative assumptions for each part of the valuation and as such believe there could be significant further upside potential. Conviction Buy.
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RISK WARNING & 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 | 2018E | 2019E | 2020E | 2021E |
|---|---|---|---|---|
| Revenues (£m) | 20.87 | 16.90 | 21.20 | 24.6 |
| Adjusted EBITDA (£m) | (0.31) | 0.82 | 4.10 | 7.50 |
| Pre-tax profit (£m) | (2.55) | (4.61) | (1.43) | 1.85 |
| EPS (p) | (0.09) | (1.62) | (0.50) | 0.65 |