Stride’s AGM statement reports strong organic growth in real money gaming and we believe it is continuing to win market share. Our forecasts are unchanged although we have slightly adjusted the mix. We forecast 11% normalised EPS growth in FY17 and strong cash generation. The FY17 multiples look very low: the P/E is only 10.2x and EV/EBITDA is 7.3x (versus 8.0x for the peer group) despite Stride’s fully regulated status and above average growth.
Stride achieved 31% growth in real money gaming (RMG) in FY16 and we believe the enlarged group (which includes Tarco and 8Ball from 31 August 2016) is continuing to deliver strong double-digit RMG l-f-l growth. Above average performance in a competitive market reflects its experienced management team, highly analytic data-driven approach and multi-brand strategy, as discussed in our Outlook report of 6 December. Against this, we believe that year to date revenues are down in Stride’s social gaming business. The FY16 results had already indicated that its management was focused more on profits than revenue growth during the earnout period (which runs to August 2017) and we believe that the impact of lower player numbers and marketing spend has flowed through to H117.
Our forecasts are unchanged, but we have adjusted the expected mix between RMG and social. News that the integrations of 8Ball, Netboost Media and the Tarco assets are progressing well is encouraging, as they were material acquisitions and doubled Stride’s share of the online bingo market from 5% to 10%.
Stride’s shares have fallen from c 280p last September as it has been caught up in adverse sector sentiment around the government’s triennial review of gambling stakes and prizes. However, we do not believe that it will have any material impact on Stride (it does little TV advertising and has no involvement in the betting terminals). The FY17 EV/EBITDA of 7.3x is 9% below the peer group despite Stride being a fully regulated pure online business that is delivering above average growth.