Gamesys Group’s interim results reporting pro forma adjusted EBITDA growth of 17% exceeded consensus expectations, demonstrating the strength of its strategy of growing the player base responsibly, while aiming for a high player retention rate. The improving financial position has resulted in the introduction of a new dividend (company commentary implies 36p/share for FY20) earlier than anticipated by us and consensus. We have increased our FY20 EBITDA forecast by 7.8%.
H120 pro forma revenue increased by 27% to £340m with growth trends accelerating in Q220 to 35% vs 19% in Q120, driven by an improvement in the UK (up 16%) and Asia (92%), which are 87% of group revenue; there was some weakness in Sweden and the Nordics. The strategy of increasing the number of players delivered 14% growth y-o-y. Pro forma adjusted EBITDA increased by 17% as relatively higher investment (vs revenue) in marketing and staff for future growth was offset by lower content licensing. The profit growth and high cash conversion (106%) gave an improved net debt position of £391.7m (2.27x net debt/EBITDA vs 2.83x at end-FY19) enables the introduction of a dividend (ahead of consensus expectations) of 12p/share, with an indicated interim/final split of 1/3:2/3 and a ‘progressive’ dividend policy.
We have increased our FY20 revenue estimate by 13.1% to £680.7m and EBITDA by 7.8% to £189.5m, which represents y-o-y growth of 20.4% and 19.3% respectively. We assume some moderation in y-o-y revenue growth rates for the UK (7%) and Asia (42%) for the remainder of the year given strong comparatives, and the macroeconomic uncertainty due to COVID-19. Our FY20 dividend forecast of 36p is as implied by the company’s commentary and we assume the dividend will grow by 5% in FY21. Our net debt forecast of £355.6m at end-FY20 implies a net debt/EBITDA position of 1.9x. For FY21, we forecast EBITDA growth of 10.1%.
The share price has recovered strongly from a low of 531p in the market sell-off due to COVID-19. On our new estimates, the P/E for FY21e is 7.3x and the EV/EBITDA is 7.2x. The free cash flow yield of 11.3% in FY21e provides strong valuation support and cash cover for the forecast dividend yield of 3.7%. The group’s business exposure should ensure that its growth rates are more stable versus peers that are exposed to sports betting and have physical locations