Gamesys Group’s Q320 trading update is ahead of expectations with pro forma revenue growth of 31% and an improved financial position. As in previous quarters, the company increased the active player base responsibly and benefitted from new game launches. We increase our revenue forecasts for FY20–22 by 5.7–7.0%, and EBITDA forecasts by a slightly lower 2–3% as management further invests in growing a sustainable and repeatable business, while ensuring revenue growth is done responsibly. This follows an EBITDA upgrade of 7.8% for FY20 at the time of the interim results. For FY21e, the free cash flow yield is 9.2% and the dividend yield is 2.9%.
Companies: JP7 GYS JKPTF
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%.
Companies: GYS JP7 JKPTF
In a continuation of previous trends, Gamesys has reported a 19% increase in Q120 pro-forma revenues to £155.3m. The business has no retail or sport exposure and the first few weeks of Q220 have been strong. Geographically, Asian markets are driving growth and the UK has been solid. During the COVID-19 lockdown period, Gamesys is proactively instigating responsible gaming measures, which include ceasing all TV advertising, and the company is donating £200,000 to Women’s Aid. The stock trades at 6.2x P/E and 6.7x EV/EBITDA with an estimated 13.1% free cash flow yield for FY21.
Gamesys Group’s FY19 pro forma results were slightly higher than previous consensus, with revenues increasing by 15% to £565.3m. Asian revenues increased by 137% and now comprise 22% of the total – predominantly from Japan. We are encouraged by the 5% growth in the UK, after a challenging year for the sector. Pro forma EBITDA of £158.9m was 4% lower than the previous year, largely due to higher UK gaming taxes. Following the acquisition of Gamesys, the net debt/EBITDA ratio was 2.8x, which we estimate will fall to 2.0x in FY20 and 1.4x in FY21. The stock trades at 4.1x P/E and 5.2x EV/EBITDA with an estimated 19.8% free cash flow yield for FY21. We note that Gamesys is not exposed to sports and therefore the business should be relatively unaffected by the coronavirus outbreak.
Gamesys has reported a positive pre-close trading update following a strong final quarter. The company expects FY19 pro-forma revenue and adjusted EBITDA to reach the top end of consensus estimates, with encouraging trends across the different divisions. Revenues from international markets (35% of total) continue to post high growth and, importantly, H219 has witnessed a return to growth in the core UK market. FY19 results are due in March 2020 and we believe there is a slight upside risk to our FY19 figures. For FY20e the stock trades at 6.2x P/E and 7.3x EV/EBITDA, with a 13.3% FCF yield.
Gamesys’ pro forma Q319 revenues increased by 20% to £144.3m due to 57% growth in Vera&John (international markets), strong momentum in the acquired Gamesys business and, encouragingly, a return to growth in the Jackpotjoy UK brand. The EBITDA margin declined 680bp to 26.7% as a result of higher taxes and marketing spend. We are raising our FY19 revenues estimate by 2.3% but keeping our EBITDA forecasts unchanged. We continue to forecast net cash flow of £105m in FY20 and our net debt/EBITDA falls from 3.0x currently to 2.0x at end FY20. The stock trades at 6.0x P/E and 7.1x EV/EBITDA, with a 13.8% FCF yield for FY20e.
JPJ’s standalone H119 revenues increased by 14% to £169.5m, with an adjusted EBITDA of £54.0m. Including Gamesys, pro-forma H119 revenues were £265.6m. This was above our expectations due to another exceptional performance in the Vera&John division, which grew revenues by 58%. As expected, the UK (both JPJ and Gamesys) and Sweden continue to suffer the impact of rising taxes and restrictive regulations. The Gamesys acquisition is due for completion in Q319 and we raise our FY19 pro-forma forecasts by c 3%. Our FY20 and FY21 forecasts remain broadly unchanged. JPJ trades at 7.0x EV/EBITDA and 5.6x P/E for FY20, at the low end of the peer group.
The global online gaming market generated c £40bn of gross gaming revenues (GGR) in 2018 and newly regulating markets (the US) are expected to contribute to 7% CAGR to 2023 (according to H2 Gambling Capital (H2GC)). However, while regulated markets have provided significant opportunities for operators to date, government intervention remains a constant threat and legislation is tightening. Some mature markets (notably the UK) have been raising taxes and implementing regulatory burdens, which increases the cost of business. In our view, success will depend on a combination of scale, diversification, proprietary technology and a strong balance sheet. Many of the 12 operators in this report should benefit from these dynamics and sector valuations remain attractive, at 12.6x P/E, 8.2x EV/EBITDA and 6.0% dividend yield for FY19.
Companies: 888 BAH ORPH GVC GYS OPAP PTEC RNK WMH
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 has announced a £490m proposed acquisition of Gamesys (its current platform provider), which equates to c 7.3x adjusted EV/EBITDA. The resulting company will be over 50% larger and key benefits include full control of the technology and meaningful scale with high-profile brands. The £490m consideration will be split between £250m cash (including £175m add-on facilities) and £240m in 33.7m new JPJ shares. Net debt/EBITDA is expected to be c 3.1x on the pro forma basis, although we envisage rapid deleveraging going forward. Our initial analysis suggests that the deal will be c 10% EPS accretive in FY20, implying a c 6.5x FY20 P/E, and we will adjust our forecasts after the conference call.
Once again, a strong performance in international markets has fully offset the well-flagged regulatory challenges in the UK. Q119 revenues increased by 13% to £83.3m, driven by a 62% growth in the Vera&John division. Operating leverage from the proprietary platform contributed to a 16% increase in adjusted EBITDA (£29.0m vs £24.9m). Net debt/EBITDA has fallen below 2.5x and management will provide an update on plans to return cash to shareholders in August. For FY20 the stock trades at 6.5x P/E, 8.0x EV/EBITDA, with an estimated dividend yield of 6.4%.
Driven by an impressive 42% organic growth in the Vera&John division, JPJ reported FY18 revenue growth of 10% to £319.6m with an EBITDA margin of 35.3%. International now comprises 43% of revenues and we expect this to increase as the company diversifies away from the UK. Cash generation remains strong and adjusted net debt/EBITDA has fallen from 3.6x in FY17 to 2.7x in FY18. Management is committed to a progressive dividend policy (once the ratio is sustainably below 2.5x) and would also consider share buybacks at that point. The stock is trading at the bottom of the peer group at 6.7x P/E and 8.2x EV/EBITDA for FY19e.
JPJ has announced a definitive agreement to sell its Mandalay subsidiary to 888 Holdings for £18m cash. During FY18, Mandalay reported revenues of c £11m and PBT of c £3.7m, which represents a deal value of c 5.0x EV/EBITDA. This subsidiary has significantly underperformed the rest of JPJ’s business and was particularly affected by the additional bonus tax in 2017. We therefore believe this asset sale is a net positive and should enable the company to better focus on its market-leading brands. The stock continues to trade at the low end of the peer group, at only 8.7x EV/EBITDA, 7.2x P/E and 11.9% free cash flow yield for FY19e.
Following the resignation of Sports Minister Tracey Crouch, the UK government has bowed to pressure to bring forward the reduction in FOBT stake limits, from October 2019 to April 2019. To coincide with the FOBT changes, the planned increase in remote gaming duty (from 15% to 21%) will also commence in April. We reduce our FY19e EBITDA by a further £6m but our FY20 estimates are unchanged. JPJ shares have fallen by c 30% ytd and, despite the reduced EBITDA, trade at only 5.7x P/E, 7.5x EV/EBITDA and 15.1% free cash flow yield for FY19e.
Despite the deluge of negative news across the UK gaming sector, JPJ Group plc (JPJ) has produced another strong quarter, with gaming revenue growth of 8% to £77.8m and an EBITDA margin of 37%. The strategy to expand beyond the UK is clearly paying off; Vera&John revenues increased 40% and international now represents 44% of total revenues. Net debt is reducing rapidly, helped by Q318 operating cash flow of £33m, as well as the £18m cash from the disposal of the social business, and we anticipate dividends from next year. JPJ shares have fallen by c 30% ytd June and now trade at only 5.2x P/E, 7.0x EV/EBITDA and 16.6% free cash flow yield for FY19e.
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The H1 results are as announced in the October update; COVID delayed several new contracts until earlier this month, leaving H1 revenue at £5.1m. However, management remained comfortable with a FY sales forecast of £21.7m on the basis of a strong pipeline and the substantial tranche of annually renewed revenue billed each H2. Reassuringly, the new contracts have now been signed for both the Celebrus Customer Data Management (CDM) solution and the Celebrus Customer Data Platform (CDP), and they cover a range of verticals from financial services to automotive manufacture and ecommerce provision. With significant net cash, D4t4 is in a strong position for long-term sustainable growth on the back of rapidly growing global demand for CDP/CDM. It remains confident on prospects in new geographies (N America and APAC) and new use markets (fraud, risk analysis and healthcare) plus a high level of recurring revenue. Our forecasts and target price remain unchanged save for a tweak to cashflow and raised dividend expectation. We reiterate our 310p target price.
Companies: D4t4 Solutions plc
Interims, in line with the October trading update and unchanged forecasts, follow a second (November) purchase order from the new US Department of State contract, highlighting momentum. The 5Cs that form management’s measure of strategic development have all generated positives: colleagues, with employee NPS rising, and no furloughs or paycuts; new & renewing customers, high-profile names and sectors; a broadening channel including generating new clients; code increasing with the addition of FIDO and increased reach through MyID Enterprise/ MyID Professional; and cash of £8.1m with £4.8m debt all in the form of in-the-money December 2021 convertibles. Strong 1H performance and cashflow derisks full-year expectations. Target raised to 125p (100p).
Companies: Intercede Group plc
IQE has announced that the strong performance in H120, which resulted in record first-half revenue, has continued into the second half. It has updated FY20 revenue guidance from at least £165m to over £170m, with adjusted EBIT guidance remaining at the mid-single-digit million level. We have updated our FY20 and FY21 forecasts accordingly, giving adjusted PBT upgrades of 34% and 10% for FY20 and FY21 respectively.
Companies: IQE plc
LoopUp has announced a very strong H1 period, in line with the previous trading update and reflecting a number of months of exceptional performance. This is allowing the business to invest in the major identified new opportunity, to provide telephony within Microsoft Teams, where the early signs are extremely positive. We look forward to further detail on the Teams pipeline and sales levels over time.
Companies: LoopUp Group PLC
Eckoh’s fast growing US SecPay business and robust UK business model have minimised the impact of lockdowns with u/l H1 revs down just 3% yoy and profits flat. ECK reintroduces FY21 guidance, expecting H2 revenues comparable to H1 and FY21 AOP comparable to FY20. US SecPay is now a meaningful >30% group revs, growing 80% in H1 and with larger customers now re-engaging. We expect growth to continue in FY21 and beyond; the opportunity is multiples of current sales (FY21E $13m- +60% yoy). We similarly expect the cash cow UK business to continue to recover and return to c. 5% secular organic growth over time. It is especially continued success with US SecPay that is likely to lead to group FCF exceeding that of £5-6m achieved in FY20/19 over time and a FCF yield well above 5%. That’s attractive.
Companies: Eckoh plc
H1 Results: Ready to reinvest
Companies: First Property Group plc (FPO:LON)First Property Group plc (GXZ:BER)
After a challenging 2H21 for the events and traffic data business, Tracsis has delivered FY results to July in line with the reassuring August trading update. With £48m (FY19: £49.2m) revenue, the group has quantified an estimated £10m set back to COVID-affected activities within the Traffic & Data Services (T&DS) Division, implying underlying outperformance compared with expectations for the higher-margin Rail Technology & Services (RT&S) Division. Forecasts describe prospects: continuing growth in FY21 and FY22 for RT&S, with two major contracts identified in latter stage of negotiation; and a still hampered FY21 for events and traffic surveys within T&DS – but forecasts for FY22 show a return to an ex-COVID environment, regaining the original growth path. With £17.9m of cash (no debt) and delivering multiple fundamental elements of the UK rail ecosystem, Tracsis has weathered the storm better than expected, with organic and acquired growth prospects as strong as ever. Target 900p reiterated.
Companies: Tracsis plc
Earnings in H1A were better than flat and H2E has got off to a good start. Margins are up and so too is recurring revenue as proportion of total business. First half order deferrals are now materialising and renewals are positive. Free cash generation was strong and the outlook is positive. We see no fundamental reason for the recent share price underperformance and we reiterate our Buy recommendation.
Companies: Shearwater Group plc
Sensyne Health (SENS.L): Research agreement with Hampshire Hospitals NHS Foundation Trust | RenalytixAI (RENX.L): First Quarter results for 2021
Companies: Sensyne Health Plc (SENS:LON)Renalytix AI Plc (RENX:LON)
Mirriad Advertising’s H120 numbers show strong top-line progress, up 109% on H119 and 26% ahead of H219. H120 revenues were up over 185% year-on-year in China and Singapore, with market confidence rebuilding. There are very promising new agreements in place with US media owners, with early moves in large adjacent markets, such as music video. There are advanced negotiations ongoing with Tier 1 entertainment platforms. These prospects significantly increase the attraction of Mirriad’s proposition to advertisers. Cash burn is now under £1m per month, with end-August cash of £13.3m (no debt). Market forecasts for FY20–22 are unchanged.
Companies: Mirriad Advertising plc
Following Fonix successfully raising £45m through an oversubscribed IPO on 12 October, we initiate our coverage with a target price of 150p. The investment case is focused upon Fonix leveraging its proprietary, cloud-based platform to expand with existing clients and win new clients within a robust UK phone-paid services market. The structural strength of Fonix’s platform is demonstrated by Fonix experiencing no churn from major customers in the past six years, which reflects that Fonix benefits from strategic integration and strong relationships with its clients. Fonix’s FY20 gross profit and EBITDA grew by +22% and +36% respectively, and we conservatively forecast +11-12% EBITDA and EPS growth in FY21 and FY22. On 12m forward EV/EBITDA of 10x and an EFCF yield of 7%, Fonix looks considerably undervalued compared to AIM payment and finnCap Tech 40 peers that are trading on 12m fwd EV/EBITDA of 17-20x with 7-17% EBITDA growth, and EFCF yields of 1-3%. We base our 150p target price on 15x FY22 EV/EBITDA or a 5% FY22 EFCF yield, and look forward to Fonix’s trading update in early 2021.
Companies: Fonix Mobile PLC
Nanoco has secured just under £1m grant funding for a life sciences project to develop a heavy metal-free quantum dot testing kit to detect COVID-19. The project will last 18 months and represents a potential third segment for generating future revenues in addition to established activities in sensing and display applications. We make minor adjustments to our estimates, although there is no impact on EBITDA or cash flow.
Companies: Nanoco Group PLC
Immotion is a leading UK-based Virtual Reality (VR) experience provider. The group yesterday announced a successful £1.2m fundraise at 4p, a 5.3% premium to the previous day's closing price, to support the strength of demand being experienced for its new ‘Let's Explore Oceans' in-home VR entertainment offering.
Companies: Immotion Group Plc
The Panoply has reported very robust interim results and we upgrade our FY21 PBT/EPS estimates by +5%/+10%. Revenues leapt +58% to £21.2m with LFL growth of +18% (Q1 +10%, Q2 +26%). EBITDA more than doubled to £2.9m, with LFL growth of +37%. Cash conversion was strong and the group has declared a maiden interim dividend of 0.2p. The group had a strong sales backlog of £17.5m at 1st October and we are pleased to note that it is increasingly winning large, multi-disciplinary contracts notably Bloomberg Philanthropies, Land Registry and Planning Inspectorate. These contracts would have beyond the capabilities of the individual businesses before they joined The Panoply and therefore in our view securing these £4m+ contracts vindicates the group strategy. We raise our PBT forecast by +5% to £4.9m (£4.7m). On a maximum deferred consideration basis, EPS is 5.1p (4.8p) while assuming shares are issued at 150p rather than our previous assumption of 120p gives EPS of 6.4p (5.8p). We have re-run our sensitivity analysis using the current share price of 200p and this indicates PF EPS of 10p could be delivered in 2023. We raise our target price to 220p (was 180p) and retain our Buy recommendation.
Companies: Panoply Holdings Plc
FY’20 results are slightly ahead of our expectations, and cap an excellent period with strong news flow. KidneyIntelX has now launched at Mount Sinai and is cleared to report results in all 50 US states. We continue to believe KidneyIntelX could represent the future standard-ofcare for early detection of chronic kidney disease progression and kidney failure in patients with Type II Diabetes, affecting an estimated 11m. Focus is now on building out the platform with expanded indicated uses, win national reimbursement and drive testing adoption. One significant catalyst ahead is Medicare coverage, which come as early as H1 2021 under new proposed rules. Whether or not this rule is finalised, the company is moving forward towards broader insurance payor coverage. In this note, we have refreshed our forecasts and valuation reflecting the deployment of IPO proceeds.
Companies: Renalytix AI Plc