Gamesys has reported a positive pre-close trading update following a strong final quarter. The company expects FY19 pro-forma revenue and adjusted EBITDA to reach the top end of consensus estimates, with encouraging trends across the different divisions. Revenues from international markets (35% of total) continue to post high growth and, importantly, H219 has witnessed a return to growth in the core UK market. FY19 results are due in March 2020 and we believe there is a slight upside risk to our FY19 figures. For FY20e the stock trades at 6.2x P/E and 7.3x EV/EBITDA, with a 13.3% FCF yield.
Gamesys’s pre-close trading statement confirmed continued strong growth in overseas markets, which comprise c 35% of pro-forma revenues. As reported at Q319, the UK brands have returned to growth in H219 and we believe the final quarter had a strong performance, particularly in terms of new deposits. Gamesys is confident its FY19 pro-forma revenue and EBITDA will reach the upper end of consensus (the top is £550m revenue and £155m adjusted EBITDA) and we therefore believe there is a slight upside risk to our FY19 figures. FY19 results are due in March 2020.
The group completed the acquisition of Gamesys in September 2019 for £490m, creating a business with high-profile brands, meaningful scale and complete operational control. At Q319, the Gamesys brands comprised 36% of total revenues (broadly equivalent to the Jackpotjoy division) and in future we expect the company to report geographically rather than by division.
At Q319, Gamesys reported 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. The stock trades at 7.3x EV/EBITDA and 6.2x P/E for FY20e, with an attractive FCF yield of 13.3%. These remain at the lower end of the peer group and, as the company rapidly deleverages, we expect value to shift from debt to equity.