Stride Gaming’s interim results for the six months to end February 2016 show that it continues to execute well. L-f-l revenue was up 21%, led by its online bingo and slots offering (up 31%, well ahead of the wider market). Its social gaming business increased profit and margins on flattish revenues as management dialled down marketing while it invested in product improvements. We increased our FY16 EBITDA estimate by £0.5m to £11.8m. An inaugural interim dividend of 1.1p per share was announced, a year earlier than we had expected, in recognition of the cash-generative nature of Stride’s business and management’s positive outlook.
Stride’s H116 interim results demonstrate that the business is making excellent progress. Reported revenues increased by 84% to £21.6m and adjusted EBITDA by 57% to £5.6m. On a pro forma basis, revenue was up 21% and EBITDA by 29% (adjusting for the acquisition of InfiApps in July 2015 and imposition of POCT gaming tax halfway through H115).The revenue growth was largely driven by an increase in the number of funded real money gaming players (up 91.6% to 60,561). InfiApps’ revenue was flat as marketing was refocused during the business integration, but revenue per player (ARPU) grew by 26%, leading to higher margins and profits. Stride launched a mobile offering for its Table Top platform, which helped increase its mobile revenue to 45.3% of the total (up from 38%).
We have upgraded our EBITDA forecasts to £11.8m in FY16 and £13.4m in FY17 (previously £11.3m and £12.8m respectively) to reflect lower than expected admin costs and higher margins at InfiApps. Our FY16 revenue forecast is broadly unchanged, but we have slightly altered the mix in favour of real money gaming. The business is cash generative and net cash of £0.3m at 29 February 2016 compares with net debt of £3.1m at 31 August 2015.
Stride’s calendar 2016e EV/EBITDA of 10.6x looks very good value given its profitability and strong execution to date, and is well below larger gaming peer 888 Holdings (on 13.3x). The valuation does not appear to recognise the potential for Stride to create further shareholder value through its ongoing buy and build strategy in soft gaming. We also believe that the initiation of a progressive dividend policy provides further support as it widens the potential shareholder base.
