Gamesys’ pro forma Q319 revenues increased by 20% to £144.3m due to 57% growth in Vera&John (international markets), strong momentum in the acquired Gamesys business and, encouragingly, a return to growth in the Jackpotjoy UK brand. The EBITDA margin declined 680bp to 26.7% as a result of higher taxes and marketing spend. We are raising our FY19 revenues estimate by 2.3% but keeping our EBITDA forecasts unchanged. We continue to forecast net cash flow of £105m in FY20 and our net debt/EBITDA falls from 3.0x currently to 2.0x at end FY20. The stock trades at 6.0x P/E and 7.1x EV/EBITDA, with a 13.8% FCF yield for FY20e.
Gamesys’ pro forma Q319 revenues increased by 20% to £144.3m, driven by 57% growth in Vera&John, which includes £22.7m revenues from Japan (15.7% of group revenues). Encouragingly, JPJ UK has returned to growth after annualising difficult comps and the Gamesys brands are also performing well. As previously highlighted, pro forma EBITDA of £38.6m (26.7% margin vs 33.5% last year) was affected by increased taxes (UK and Sweden), as well as higher marketing spend internationally. We are raising our FY19 revenue estimate by 2.3% but leaving our EBITDA and net profit broadly unchanged. Although we believe there could be upside to our international forecasts, we note that grey markets can be far more lumpy and volatile.
The group completed the acquisition of Gamesys in September 2019 for £490m and, on a pro forma basis, for 9M19 the Gamesys division contributed £150.3m to revenues, £40m to operating profit and £24.5m to net profit. The Gamesys brands have been included within the Jackpotjoy division and will roughly double divisional revenues. We continue to forecast double-digit growth for standalone Gamesys for FY20 and FY21. Going forward, we expect the company to report geographically rather than by division.
Gamesys ended the quarter with unrestricted cash of £97.9m and adjusted net debt of £484.7m, which equates to 3.0x net debt/EBITDA, which we forecast will fall to 2.0x by year-end FY20. Gamesys trades at 7.1x EV/EBITDA and 6.0x P/E for FY20e, with an attractive FCF yield of 13.8%. This remains at the lower end of the peer group and, as the company rapidly deleverages, we expect value to shift from debt to equity.