Gaming Innovation Group: One step forward, but plenty more to go - SEB
Q2 was a step in the right direction, but plenty more to go
In our view, the report was a step in the right direction, although more is needed in the coming quarters in terms of cost savings and revenue growth. We continue to see potential for GiG’s transformation and turnaround to continue with the new company achieving an EBITDA margin of ca 35% in 21-22E.
Strong July trading update, we are in line with full year guidance
Guidance for continued operation for 2020 is updated to EUR 52-57m in revenue vs EUR 48-53m previously. EBITDA guidance of EUR 12-15m remains. We are in line with EUR 53m and 14m, respectively. We have raised reported estimates, mainly relating to a technical adjustment, with revenue from partnership with Sky City being consolidated in full and not only commission, which was our previous assumption. Underlying EBITDA is up 6-8% in 2021-22E. GIG reported that July got off to a strong start with 38% y/y growth in adjusted revenue. The company signed three new platform clients and expects more to be signed before year end.
SOTP analysis suggests equity valuation of SEK 13.4 per share
Our DCF analysis yields a mid-point value of SEK 18.7 using a 10% WACC and implies a 20-25% CoE at the current share price. Our SOTP points to an intrinsic value of SEK 13.4 and moreover suggests that the market is currently assigning a negative value to GiG Core and Sports Betting Services, i.e. does not discount a successful turnaround. On our updated forecasts, the shares trade at a negative PER in 2020 and 10x 2021E and 6x 2022E.
https://research.sebgroup.com/pdf/GiG120820b.pdf
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