Gaming Realms has announced a strategic partnership with the Ayima digital marketing agency whereby it is injecting its QuickThink Media (QTM) assets in return for a 10% stake valued at £540k. The rationale for the deal is to allow Gaming Realms’ management to further focus on its core strength, being the development and publishing of mobile optimised social and real money games, while also strengthening QTM’s outlook by placing it within a growing complementary business.
The terms of the deal will see Gaming Realms receive shares in Ayima equal to 10% of the enlarged Ayima share capital (valued by Gaming Realms at £540k) following its completion. We believe that the QTM assets will benefit from revenue synergies as a result of being part of a successful specialist digital marketing business, enabling it to continue to develop its service offering while also taking advantage of Ayima’s enhanced sales channels. Consequently QTM should be better placed to achieve growth going forward, with Gaming Realms remaining leveraged to its future success via its Ayima shareholding.
We have reduced our 2016 revenue forecasts from £40m to £37.1m to reflect the disposal, with a commensurate reduction in Gaming Realms’ cost base to arrive at an unchanged 2016 adjusted EBITDA forecast of £0.8m. We have also taken the deal as an opportunity to revisit our 2017 forecasts including the full year impact of the QTM disposal and the effect of the extension of the UK Point of Consumption tax (POCT) to free play; we have reduced our 2017 revenue forecast from £65.0m to £54.3m and our adjusted EBITDA forecast from £11.6m to £6.9m.
Gaming Realms trades on a 2017e EV/EBITDA of 7.1x, placing it at a discount to its peer group average of 8.6x. We believe that the discount reflects a level of historic business mix volatility and the fact that Gaming Realms is yet to achieve profitability. We continue to expect EBITDA profitability to be achieved this year. EBITDA profitability coupled with a period of stability should be rewarded with a positive re-rating.