By Richard Gill, CFA

Gaming Realms, the creator and licensor of innovative games for mobile, has continued its international expansion with the award of an iGaming Supplier licence in Ontario, Canada. Subsidiary Alchemybet Limited will now be able to supply the company’s Slingo Originals game content within the province upon opening of the regulated iGaming market on 4th April this year, with preparations for this being made.

Gaming Realms’ flagged its proposed entry into Ontario in its interim results last year and attracted attention with the statement that Ontario, …“has the potential to be a bigger market for Gaming Realms than any one of the U.S. states that have regulated so far”. With a population of 15 million Ontario is larger than any state within the U.S. that is currently licensed for iGaming. The company believes it is reasonable to expect that revenues will be higher than New Jersey, Michigan or Pennsylvania, the U.S. states where it is currently supplying its Slingo Originals content.

Gaming Realms also added a brief statement on current trading, stating that 2022 has started well, with revenues in excess of management’s expectations.

ASSESSMENT

Another good development from Gaming Realms as its continues with its strategy to gain operating licences in new territories worldwide and bring its Slingo content to new audiences. It follows; entry into the regulated Romanian iGaming market last November through a partnership agreement with Superbet; going live with games in the newly regulated Dutch market in December under the Jack’s Casino and Sports brand and; entry this year into the regulated Spanish market with long-term partner Gamesys under its Monopoly and Botamania brands.

As mentioned, Ontario is a potentially huge market for iGaming. A recent report from analysts at VIXIO GamblingCompliance suggested that the Ontario online market will see gross gaming revenue of C$3.27 billion (US$2.6 billion) by its fifth year of operation in 2026. That would make it the third-largest regulated online market in North America behind the more mature U.S. markets of New Jersey and Pennsylvania.

We also welcome the comments on current trading, these coming a few weeks after Gaming Realms confirmed that results for 2021 are expected to be in line with market expectations. Revenues for the year are expected to be up by 27% at c.£14.5 million, with adjusted EBITDA up by 70% at c.£5.6 million as a result of continued growth in the core licensing business. For 2022 we are currently looking for revenues to grow to £20.8 million and EBITDA to £8 million but will review our forecasts when the full year results are released in the week commencing 25^th April.

The markets have reacted well to the Ontario statement, sending Gaming Realms shares up by 17% to 28.5p. This follows the shares falling to a 14 month low of 22.5p amongst the current market malaise. However, they remain well off last April’s high of c.47p.

We currently have a peer EV/EBITDA multiple based target price of 53.13p for the shares, implying 86% upside. We are happy to retain our target for now and also flag that we continue to believe Gaming Realms could be on the radar as a potential target for a larger player looking to expand its games portfolio and improve margins. Corporate activity in the sector remains high, with three of the companies in our peer analysis now having been acquired in recent months.

We retain our target price of 53.13p and stance of Conviction Buy.

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