2017 was a transformational year for JPJ, with a successful London listing followed by substantial improvements in the capital structure. JPJ is the leading operator in the £800m UK online bingo market and has now delivered five consecutive sets of robust quarterly results. FY17 revenue growth of 14% y-o-y to £304.7m was accompanied by an operating cash flow of £102m. After the final major earn-out payment in June 2018, we expect meaningful deleveraging. Our forecasts now include dividend payments from 2019. The shares rose by c 40% in 2017 but still trade at a significant discount to peers at 8.1x EV/EBITDA and 6.9x P/E for 2018e.
Overall, FY17 net gaming revenues (NGR) grew 14% y-o-y to £304.7m, above our estimate of £298.2m. For Q417, NGR grew 13% vs Q416, primarily driven by 42% growth in Vera&John (24% of revenues). FY17 adjusted EBITDA of £108.6m compares to £102.2m in FY16 and was also above our estimate of £107.4m. As expected, Q417 EBITDA margin was affected by higher UK gaming taxes (the addition of bonuses into the Point of Consumption Tax or POCT 2) and a targeted marketing campaign for Jackpotjoy UK. We have nudged up our FY18 and FY19 revenue forecasts by c 2.5%, but our EBITDA forecasts remain broadly unchanged. Our new FY20 figures are affected by the agreed increase in service fees payable to Gamesys, with a 50bp drop in the EBITDA margin vs FY19.
With 94% cash conversion, FY17 operating cash flow was £102m and the company ended the year with unrestricted cash of £59m and net debt of £311m, in line with our estimates. Net debt adjusted for the remaining earn-outs was £387m. Following the c £50m earn-out payment in June 2018 (for Botemania), we estimate FY17 adjusted net debt/EBITDA of 3.6x will fall to 2.7x in FY18 and 1.9x in FY19. We have now included dividends into our forecasts from 2019, assuming a c 30% payout ratio.
JPJ has produced five sets of robust quarterly reports since re-listing in London. After rising c 40% in 2017, the share price performance has drifted in 2018. At 6.9x P/E, 8.1x EV/EBITDA and 13% FCF yield for 2018e, JPJ trades at a meaningful discount to peers. This appears unjustified given JPJ’s growth profile and high cash generation, which should lead to demonstrable debt reduction from mid-2018 (post the Botemania earn-out payment).