Stride’s AGM trading update confirmed the continued momentum in its core real money gaming (RMG) vertical. The Aspers Casino partnership has had an encouraging start and Stride is well positioned to keep gaining market share. Its key differentiating factor is the high-performing proprietary platform and we expect underlying margin expansion as customers migrate from acquired businesses. We believe that visibility into the social gaming vertical (5% of revenues) remains limited and we have lowered our future revenue forecasts by c £2m per year. Our profit forecasts are unchanged. At 7.4x EV/EBITDA and 10.8x P/E for CY18, Stride trades at a meaningful discount to peers.
Stride is the UK’s third largest online bingo operator and the core RMG division is performing robustly. The acquired 8Ball and Tarco businesses are now fully integrated post their earnout periods and we anticipate further synergies as customers steadily migrate to Stride’s proprietary platform. The company is well placed to manage regulatory changes, such as social responsibility and selfexclusion, and should continue gaining market share.
We have lowered our social gaming revenues by c £2m per annum to reflect the limited visibility, but our EBITDA forecasts remain unchanged. Indeed, Stride’s investment into products is now in the final stages and we believe there could be margin upside to our estimates if Stride’s target synergies are achieved. In addition, we are encouraged by the progress with the Aspers Casino partnership, which will feed into RMG EBITDA from this year. We introduce FY20 estimates, which assume an 8% growth in RMG revenues and a group EBITDA margin of 21.6%.
Stride is fully regulated, successfully increasing market share, growing well ahead of the sector average and generating cash, with a progressive dividend policy. However, its 7.4x EV/EBITDA and 10.8x P/E for CY18 remain below the peer group averages of 9.3x and 13.3x. Now that the earnout periods for 8Ball and Tarco have ended, we would expect to see continued integration momentum, which should lead to a progressive closing of the valuation discount.