As we mentioned in our note about the first insights into the effects of the regulation. We got clear signals that the first weeks of 2019 was problematic. Several sources reported issues with integrating “spelpaus” and deposit limitations. The companies also indicated lower player values and lower players volumes. As a result, the decrease in revenues pointed in the range of 10-30%. The problematic star of 2019 has also been confirmed and described in several of the listed gambling-related companies year-end reports.
We were expecting a challenging start of 2019 that would erase Global Gaming´s strong momentum on the Swedish market. However, with the information above and further details. It is very likely that the decrease of Global Gaming revenues on the Swedish market will be larger than expected. This due to the following reasons.
Our conclusion is that we are observing a more negative reality than what we expected in the Base-case scenario. Moreover, due to Global Gaming´s large exposure to the Swedish market, the impact on the revenue will be large. The effects will also not only be limited to the first quarter of 2019. We expect that it will cause a ripple effect lowering expectations for the years to come. As a result, we have adjusted our Base-case estimates and estimated with a scenario somewhat closer to our Bear-case scenario. Meaning, that both the Base- and Bull-case will shift towards the Bear-case.
The new financial forecast will lead to a large decrease of the bottom line results for the years to come. The effects of the adjustments, comparing new and old estimates, are illustrated in the table below.
Our view of Q4 is, however, still intact, and we expect a strong Q4 performance. We also expect that the company will utilize its strong financial position to increase the marketing spend during 2019. As long as, the government does not implement large marketing restrictions. The strong financial position could also be utilized through acquisitions or expansion into new markets.
Our new Base-case valuation is SEK 43 (52), based on a DCF-valuation. The Bear-case remains the same at SEK 21 (21). Meanwhile the Bull-case decreases to SEK 65 (78). The Base-case still signals a clear upside compare the last closing price of SEK 30.62. However, we expect that the Q1 report for Global Gaming will be weak with a large risk of losses on the bottom-line. This together with decreasing revenue will, most likely, be difficult for the stock market to handle. Meaning, that it is very likely that the share price will stay far below the Base-case until a clear positive trend is spotted.
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