Stride has a clear focus on online bingo and soft gaming and is growing rapidly, with FY16 l-f-l revenue up 22%. The acquisitions of Tarco and 8Ball at the end of FY16 doubled its share of the UK bingo-led market from 5% to 10% and should deliver material synergies from FY17. Our unchanged FY17 estimates are for 11% EPS growth and strong cash generation. We expect organic growth to be augmented by further accretive acquisitions in due course. Stride’s FY17 P/E is 10.3x and the calendarised EV/EBITDA is only 7.1x, implying considerable share price upside potential.
Stride is led by an extremely experienced management team and its above average growth in a competitive market reflects its highly analytic data-driven approach and multi-brand strategy. FY16 real money gaming player numbers increased by 37%, with yields per player up 7%, while social gaming daily average revenue per playing user increased by 22%. Focused entirely on regulated markets, with 85% of FY17e revenues arising in the UK, Stride has taken advantage of opportunities presented by the introduction of the UK POC gaming tax in December 2014, which has squeezed smaller operators and left larger multiproduct operators focusing more on sports, casino and M&A than on bingo.
FY16 EBITDA was in line with expectations at £12.3m, up 68% on FY15 helped by a full year contribution from InfiApps. Like-for-like growth was excellent with revenue up 22% and EBITDA 27%. Year-end net cash of £11.3m was flattered by working capital movements but we still expect an increase to £15.5m by end-FY17. The Tarco and 8Ball acquisitions (31 August 2016) provide a step-change in scale and significant potential synergies (see our Update report of 19 September, when we materially increased our profit estimates). Our forecasts in this report are unchanged and allow for the extension of POC to ‘free play’ from August 2017.
Stride is fully regulated, successfully increasing market share, growing well ahead of the sector average and generating cash, with a progressive dividend policy. Yet its calendar 2017e EV/EVITDA is now only 7.1x, below its historic average and the peer group. We believe it has been caught up in adverse sector sentiment, providing an excellent opportunity for investors to take another look. With a broader institutional base and improved free float post the August £11m placing, we believe there is significant share price upside potential.
