By Richard Gill, CFA

Gaming Realms (GMR), the developer and licensor of mobile focused gaming content, has announced a brief but highly positive statement covering trading since the year end in December. The headline news is that EBITDA for the current financial year is now expected to be “significantly ahead of current market expectations.”

This comes on the back of revenues from the Licensing division continuing to grow strongly, being up 80% in the five months to May. Driving the performance was continued growth in new licensing partners, with recently announced new partners including 888casino.com, Sky Betting & Gaming in the UK, and Draft Kings in New Jersey, US. There has also been a high level of take-up for the company’s games by partners’ end customers, aided by the release of three new Slingo games this year. In addition, revenue from the Social division was up 15% over the five months to end May.

ASSESSMENT

This is another excellent statement from Gaming Realms, following on from a number of positive announcements earlier this year. With the company recently reporting Q1 Licensing revenues up by 90% it is good to see the strong momentum continue into April and May, two months which saw the world subject to the coronavirus pandemic. It is also a bonus to see the Social business, which was considered to be a non-core focus, now back on the growth track.

Given that our forecasts are at the higher end of market expectations we are leaving them unchanged for now but see the potential for increases should the current momentum continue into H2 2020. For the full year we are currently looking for maiden annual EBITDA at the group level of just under £1.5 million. For 2021, as licensing revenues rise and the operational gearing kicks in, we are looking for EBITDA of £3.3 million, and £5 million in 2022. Again, we point out that our forecasts could be considered conservative as upon updating them back in March this year we assumed no further significant distribution deals were signed in addition to those already announced at the time.

The shares have reacted positively to the update, now trading at a three year high of 13.5p and up from 6.875p since we updated coverage on 5^th March 2020. Our peer derived target price remains at 25.37p, implying further upside of 88% from the current price. However, assuming management continue to deliver on expectations over time we would expect to revise our forecasts upwards and will revisit them at the latest when interims are released in September. Our stance remains at Conviction Buy.

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