Stride Gaming — Update 8 February 2016

Stride Gaming — Update 8 February 2016

Stride Gaming

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Stride Gaming

Positive update – InfiApps integration going well

Trading update

Travel & leisure

9 February 2016

Price

242.5p

Market cap

£124m

$1.30/€1.45/£

Net debt (£m) at 31 August 2015

3.1

Shares in issue

51.3m

Free float

17%

Code

STR

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.7)

(7.6)

N/A

Rel (local)

(2.4)

2.9

N/A

52-week high/low

317.5p

132p

Business description

Stride Gaming is a UK-focused, real-money, bingo-led operator, using its proprietary and purchased software to provide online bingo and related gaming activities to players. It only operates in regulated markets.

Next event

Interim results

April 2016

Analysts

Eric Opara

+44 (0)20 3681 2524

Jane Anscombe

+44 (0)20 3077 5740

Stride Gaming is a research client of Edison Investment Research Limited

Stride released a trading update with its 5 February AGM. The company reported that trading in the early part of the financial year (August year end) has started well and is in line with management expectations. Particular attention was paid to its July 2015 social gaming acquisition, InfiApps, the performance of which Stride’s management reports it is "delighted" with. The company has restated its commitment to its ‘buy and build’ strategy to supplement its positive organic growth.

Year end

Revenue (£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/14

8.5

1.2

1.2

4.0

0.0

N/A

N/A

08/15

27.8

7.3

7.2

14.0

0.0

17.3

N/A

08/16e

45.0

11.3

10.1

16.3

0.0

14.9

N/A

08/17e

48.8

12.8

11.3

18.1

0.0

13.4

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Solid early FY16e trading – forecasts unchanged

Our December 2015 initiation report forecast 62% y-o-y revenue growth in FY16e to £45.0m, with EBITDA rising from £7.3m in 2015 to £11.3m. This includes the first full-year contribution from InfiApps. Stripping out the effect of InfiApps, we forecast underlying growth of 16% in the core real money business. Although unchanged, our confidence in our forecasts is bolstered by management’s positive update.

Organic growth supplemented by M&A

Stride specialises in ‘soft’ gambling verticals (‘bingo-led’) and social gaming. These areas are yet to see the same level of M&A activity that other parts of the online gambling industry (such as online sports betting) have experienced over the last 12 months. We believe that the same scale benefits are applicable to online bingo as are true of online sports betting, particularly since the introduction of the UK Remote Gaming Duty in December 2014. As a result, we expect that it is more a case of when, rather than if, with respect to a higher level of M&A activity in the soft gambling space. Stride’s management has reiterated its commitment to further M&A and we anticipate that it will be among the industry’s consolidators as our M&A thesis starts to play out.

Valuation: Further expansion to drive share price

Stride’s shares performed extremely strongly following its May 2015 listing, rising from its IPO price of 132p to a peak of 325p in September. The shares have since moderated and currently trade at 240p, giving Stride an FY16e EV/EBITDA valuation of 11.2x, falling to 9.9x in FY17e. This is at the upper end of Stride’s peer group in recognition of its profitability and high cash-generation profile. Stride has clearly stated that it intends to take part in further M&A activity. We believe that further well-priced acquisitions or successful entry into a new geographic market could provide a catalyst for the company to start to re-test its 52-week highs.

Exhibit 1: Financial summary

£m

2014

2015

2016e

2017e

Year-end 31 August

UK GAAP

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

8.5

27.8

45.0

48.8

Cost of Sales

0.0

(2.8)

(4.3)

(4.8)

Gross Profit

8.5

25.1

40.6

44.0

EBITDA

 

 

1.2

7.3

11.3

12.8

Operating Profit (norm)

 

 

1.2

7.3

10.7

11.9

Amortisation of acquired intangibles

(0.3)

(2.5)

(4.0)

(4.5)

Exceptionals

(0.1)

(3.3)

(2.5)

(0.5)

Share based payments

0.0

(1.0)

(2.9)

(2.9)

Operating Profit

0.8

0.4

1.3

4.0

Net Interest

0.0

(0.1)

(0.6)

(0.6)

Profit Before Tax (norm)

 

 

1.2

7.2

10.1

11.3

Profit Before Tax (FRS 3)

 

 

0.8

0.4

0.7

3.4

Tax (reported)

0.0

0.1

(0.9)

(1.0)

Profit After Tax (norm)

1.2

6.2

9.2

10.2

Profit After Tax (FRS 3)

0.8

0.4

(0.2)

2.3

Average Number of Shares Outstanding (m)

31.2

43.8

51.2

51.3

EPS - normalised (p)

 

 

0.0

14.2

18.0

20.0

EPS - normalised fully diluted (p)

 

 

4.0

14.0

16.3

18.1

EPS - (IFRS) (p)

 

 

0.0

0.9

(0.4)

4.6

Dividend per share (p)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

90.1

90.4

90.2

EBITDA Margin (%)

14.6

26.3

25.2

26.2

Operating Margin (before GW and except.) (%)

14.6

26.1

23.8

24.4

BALANCE SHEET

Fixed Assets

 

 

0.1

37.1

32.2

28.1

Intangible Assets

0.0

36.4

31.7

27.6

Tangible Assets

0.0

0.2

0.1

0.1

Investments

0.1

0.5

0.5

0.5

Current Assets

 

 

5.7

11.7

14.7

15.4

Stocks

0.0

0.0

0.0

0.0

Debtors

5.7

4.2

5.8

6.4

Cash

0.0

7.4

8.9

9.0

Other

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(1.2)

(7.7)

(14.6)

(7.0)

Creditors

(1.2)

(6.6)

(6.6)

(7.0)

Short term borrowings

0.0

(1.1)

(8.0)

0.0

Long Term Liabilities

 

 

0.0

(10.2)

0.0

0.0

Long term borrowings

0.0

(8.0)

0.0

0.0

Other long term liabilities

0.0

(2.2)

0.0

0.0

Net Assets

 

 

4.6

30.8

32.3

36.5

CASH FLOW

Operating Cash Flow

 

 

0.0

4.6

8.7

12.1

Net Interest

0.0

0.0

(0.6)

(0.6)

Tax

0.0

(0.1)

(0.9)

(1.0)

Capex

0.0

(0.6)

(1.2)

(1.3)

Acquisitions/disposals

0.0

(18.1)

(2.0)

(1.0)

Financing

0.0

10.4

0.0

0.0

Dividends

0.0

(3.0)

0.0

0.0

Net Cash Flow

0.0

(6.6)

4.0

8.2

Opening net debt/(cash)

 

 

0.0

0.0

3.1

(0.9)

Moving in player balances

0.0

1.0

0.0

0.0

Other adjustments

0.0

2.5

0.0

0.0

Closing net debt/(cash)

 

 

0.0

3.1

(0.9)

(9.0)

Source: Edison Investment Research, Stride Gaming. Note: *2015 dividend was a pre-IPO distribution as part of the group reorganisation. Stride Gaming began operating in 2012 and acquired Top Table Entertainment in September 2014.

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Germany

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United Kingdom

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US

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NSW 2000, Australia

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Industrials

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