We are updating our forecasts to reflect JPJ’s £490m proposed acquisition of Gamesys. For FY20, our pro forma adjusted EBITDA is 77% higher than for standalone JPJ and we forecast EPS accretion of 10.5%. The £490m consideration will be split between £250m cash (including £175m of add-on facilities) and £240m in 33.7m new JPJ shares. We forecast net debt/EBITDA of 3.1x at YE19, falling rapidly to 2.0x at YE20. On this basis, we believe the company could start to pay dividends in H220, and would be in a position to consider share buybacks. Assuming the deal completes on these terms, JPJ trades at 7.6x EV/EBITDA and 6.4x P/E for FY20.
JPJ’s proposed acquisition of Gamesys appears to be a neat solution to gain control of the platform, improve operational performance and accelerate international growth. Gamesys brings a number of high-profile brands (Virgin, Heart Bingo, Monopoly, but not the sports brands), ownership of a bingo and a slots studio, as well as a 15-year new content agreement (for an additional c £8.5m annual fee). Integration risk is low given the longstanding relationship between the two companies and the Gamesys CEO will become the CEO for the enlarged group. The business will be renamed Gamesys Group and we expect the company to enter the FTSE 250 on completion, which is anticipated in Q319.
The £490m acquisition price is to be split between £250m cash (including £175m of add-on debt facilities and existing cash) and £240m of new JPJ shares. Gamesys revenues and adjusted EBITDA in 2018 were £185m and £67m, respectively, and our new pro forma figures assume an 11% revenue CAGR for Gamesys for 2018– 21. We also expect that an additional c £10m of point of consumption tax (POCT) will be broadly offset by cost savings and synergies. Altogether, our FY20 adjusted EBITDA is 77% higher than before and we estimate 10.5% EPS accretion. With strong cash generation, we forecast net debt/EBITDA of 3.1x at YE19, falling rapidly to 2.0x at YE20. This is only slightly higher than our previous YE20 forecast of 1.8x, suggesting that the company could pay a dividend in H220.
Our new pro forma forecasts indicate 10.5% EPS accretion on the back of this deal and, on this basis, JPJ trades at 7.6x EV/EBITDA and 6.4x P/E for FY20. 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.