Jackpotjoy plc’s (JPJ’s) Q1 revenues rose 13% to £80.7m, driven primarily by diversification and growth in international markets, with its Vera&John division (26% of revenues) increasing 35%. The earn-out period for the Spanish division has now ended and, given its strong performance, the total contingent consideration increased 20% in the quarter to £72.1m, with £63.8m payable this year. Our headline revenue and profit forecasts remain broadly unchanged and we continue to expect significant deleverage after the final major earn-out payment in June 2018. The stock trades at 7.8x EV/EBITDA and 6.5x P/E for FY19, a meaningful discount to peers.
JPJ is continuing its steady growth through diversification into new markets, producing consistently strong cash flow across all divisions (90% cash conversion). Q118 revenue growth of 13% was driven by a 35% increase in Vera&John, while the core Jackpotjoy division increased by 7%, indicating mid-single-digit UK growth. As previously discussed, Mandalay has now been consolidated into the Jackpotjoy division and we expect management to focus on cross-sell between brands. Group EBITDA of £27.1m (vs £29.2m in 1Q17) was in line with our estimates and, while the revenue mix is now more skewed to international growth, our headline forecasts remain broadly unchanged.
Since FY17, total contingent consideration has risen from £59.6m to £72.1m, indicating a significant uptick in the Spanish Botemania division during the first quarter. The earn-out period for Botemania ended in March 2018 and the final major earn-out payment to Gamesys (c £60m) is due in June 2018. From this point, we anticipate significant deleverage, with adjusted net debt falling from 3.6x at Q118 to 2.8x at end FY18 and 2.1x at end FY19. We forecast dividend payments from 2019.
After rising c 40% in 2017, the share price performance has drifted in 2018. At 6.5x P/E, 7.8x EV/EBITDA and 13.4% FCF yield for 2019, JPJ trades at a meaningful discount to peers. This appears unjustified given its growth profile and high cash generation, which should lead to demonstrable debt reduction from mid-2018 (post the Botemania earn-out payment).