Research note


Cherry: Management shows confidence

Yesterday Cherry announced that the end of the year has been developing according to their expectations and they feel confident in their guidance for the full year. The new management team of ComeOn has reversed the previous negative trend and is now focused on continued growth and profitability during 2018. Third-party traffic data for ComeOn’s main gambling brands confirms the trend shift. We remain confident about Cherry and see significant potential from today’s share price levels with limited downside risk. Yggdrasil also announced information about a new product vertical; interactive table games, that will be launched during the first quarter of 2018.

We believe that the positive statement from Cherry show’s that the issues within ComeOn was temporary, and could be fixed relatively quickly. Just as we thought and also previously discussed; we did not find any signs of larger personal drop, which would have implied deeper issues or “bad-buzz” about ComeOn in our industry network. We model increased profitability and improved growth rates starting from Q1’18.

Cherry’s statement of the positive development is confirmed by traffic data that we have gathered for the “old” ComeOn’s major gambling sites. The data, based on Alexa statistics, implies increased traffic from the end of October, which was also the same time as the new management took charge of ComeOn. We want to alert the reader that our data does not come from the company, but based on third-party statistics. However, the correlation between the change of management and the apparent traffic trend shift seems unlikely to be a mere coincidence. 

As we have previously discussed; we believe that the market will continue to wrongfully put short-term pressure on the share and ignore the growing gems of Yggdrasil and Game Lounge until the ComeOn issues are fixed. Today’s announcement and our data make our confidence in a fast turn-around even stronger. We continue to view the valuation as undoubtedly attractive due to;

  • Yggdrasil continues to show innovation with new products, rapid launch of new games and partner agreements. Read more about the new product vertical of table games here.
  • The option exercise of Game Lounge boosting EPS and the segment shows excellent growth rates with extremely high margins.
  • ComeOn turn-around underway and confirmed both by third-party data and managements’ positive statement.

It is likely that we will have to wait until the Q1 report is presented before the real re-valuation will take place initiated, as the figures shown then should lift any doubt about ComeOn’s performance and health. But sometimes the market acts faster than that. Our Base-case valuation amounts to 76 SEK per share. Our supportive Sum-Of-The-Parts valuation also indicates a significant potential from today’s levels.

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