GiG: Outlook remains strong, split of business could create valuation upside
Research Update
2023-02-24
07:37
Redeye updates on GiG following its Q4-results which came in slightly above expectations. The outlook also remains strong with continued potential for topline growth and margin improvement going forward and we make limited changes to our estimates. However, the main news was the initiated strategic review with purpose of splitting its Media and Platform business in two independent listed companies which has potential to increase the value of the group in our view.
HA
AH
Hjalmar Ahlberg
Anton Hoof
Strong Q4 driven by Media segment
GiG's Q4-results came in slightly above our expectations driven by strong performance in the Media segment which saw both stronger growth and profitability than expected. However, Platform came in slightly lower than our forecast and we have assumed a slightly slower ramp-up of margin improvement during 2023-24E.
Split of business could create valuation upside
In connection with the Q4-results, GiG also announced that it is initiating a strategic review with purpose of splitting its Media and Platform business in two independent listed companies. The company sees potential for the business to grow faster as separate businesses and in our view a separation could potentially also create valuation upside.
Outlook remains strong, limited estimate changes
Overall, we have made limited changes to our estimates, although the slightly slower ramp-up of profitability in the Platform segment results in EBITDA being trimmed with 4% for 2023-24E. Our valuation range remains unchanged with a base case of SEK45 which implies an EV/EBITDA multiple of 11x 2023E while the share currently trades at c7x EV/EBITDA 2023E.
Key financials
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 66.8 | 90.1 | 119.8 | 142.3 | 167.2 |
| Revenue Growth | 28.0% | 34.9% | 33.0% | 18.8% | 17.5% |
| EBITDA | 20.7 | 32.5 | 52.3 | 67.4 | 80.8 |
| EBITDA Margin | 31.0% | 36.1% | 43.6% | 47.4% | 48.3% |
| EBIT | 7.0 | 11.9 | 25.5 | 40.6 | 54.0 |
| EBIT Margin | 10.4% | 13.2% | 21.2% | 28.5% | 32.3% |
| Net Income | 0.35 | 5.8 | 16.1 | 30.9 | 41.6 |
| EV/EBIT | 25.0 | 32.5 | 15.0 | 8.7 | 6.0 |
| EV/EBITDA | 8.4 | 11.9 | 7.3 | 5.2 | 4.0 |
Strong Q4 driven by the Media segment
GiG reported revenue of EUR26.0m in Q4 2022 which was above our forecast of EUR25.4m. The beat was mainly driven by the Media segment which saw revenue of EUR17.8m compared to our forecast of EUR17.0m. Platform reported slightly lower revenue than we estimated coming in at EUR8.2m compared to our estimate of EUR8.5m.
On EBITDA, the company reported EUR10.8m which was 6% above our forecast also driven by the Media Services segment reporting an EBITDA of EUR8.9m (we estimated EUR8.1m). The strong profitability in the Media Segment (EBITDA-margin of 50% compared to our forecast of 48%) was achieved despite an increased marketing spend driving a strong FTD intake of 115.9k creating potential for continued growth in 2023.
Outlook remains positive
Commenting on the start of Q1 2023, the company saw organic growth of 15% and total growth of 29% in January which will be supported further by the addition of AskGamblers from February. The company reiterates its long-term financial goals of annual organic growth of 20% and for the EBITDA-margin to reach 50% by 2024. Finally, GiG has also initiated a strategic review with the purpose of separating Media and Platform to independent listed companies, where the planning will start in Q1 2023 and continue over the year.
Continued strong growth and FTD intake in Media segment
GiG saw yet another quarter with strong growth in its Media segment in Q4 2022 with revenue increase of 39% driven by a strong performance during the FIFA WC. In total, the company had an FTD intake of 116k, up 91% from Q4 2021 of which 95% was on revenue-share or hybrid contracts. This supports a continued positive growth outlook for 2023E which will further be supported by the acquisition of AskGamblers. The latter will also support margin-expansion for the business as AskGamblers is expected to have a EBITDA-margin of 60-70% going forward. As such, we expect continued strong growth and improved EBITDA-margin as illustrated in the charts below.
Gearing up for margin expansion in Platform segment
GiG's Platform segment saw an EBITDA-margin of 22% in Q4 2022, which was stable compared to Q3 2022 albeit somewhat lower than our forecast of 25%. The company met some headwinds in the quarter as some smaller brands closed down, resulting in an unchanged number of brands being live on the platforms despite four new launches. While the company has a solid pipeline of clients that will go online during the year and several new clients signed, we have assumed a somewhat slower ramp-up of profitability in the near term. Nevertheless, looking into 2023, the next phase for the business will be realisation of synergies which should gradually lift margins in the coming quarters and then continue in 2024-25E as illustrated in the two charts below.
Limited changes to estimates
Overall, we make limited changes to our estimates. However, we have assumed a slightly slower ramp-up of profitability in the Platform segment on the back of the lower than expected margin in Q4 and as such we trim our 2023-24E EBITDA with c4%. The tables below summarise our forecast with a group P&L and revenue and EBITDA per segment.
SOTP-valuation
On the back of GiG's announcement that it is initiating a strategic review with the purpose of splitting its Media and Platform business in two independent listed companies, we have included a SOTP-valuation in this update. The SOTP-valuation illustrates a valuation range where we have assumed a low-end and a high-end valuation based on the valuation of listed peers. In our peer group, the range for Platform peers varies from around 7x in the low-end to around 20x 2023E EV/EBITDA in the high end. For the Media peers, the range varies from around 5x 2023E EV/EBITDA to around 10x 2023 EV/EBITDA. On the back of this we provide the table below illustrating a valuation range per share for the two segments (excluding adjustments for net debt) ranging from SEK6-18 per share for the Platform and SEK19-38 for the Media business. For the group in total, including net debt, the SOTP-valuation illustrates a range of SEK21-52 per share implying an EV/EBITDA multiple of 5x to 12x 2023E.
DCF-Valuation
Coming to our DCF-based valuation range, this remains unchanged where our base case stands at SEK45 which implies an EV/EBITDA multiple of 11x for 2023E and 9x for 2024E. Our bull case stands at SEK71 and our bear case at SEK26. The table below summarise our assumptions for the three scenarios.
| Bear case SEK26 | Base case SEK45 | Bull case SEK71 |
| Sales growth average of about 7% between 2024-28 and average EBITDA margin of approximately 44% during the period. | Sales growth average of about 12% between 2024-28 and average EBITDA margin of approximately 49% during the same period. | Sales growth average of about 16% between 2024-28 and average EBITDA margin of approximately 53% during the period. |
| Terminal growth of 2% and terminal EBITDA margin of 40%. | Terminal growth of 2% and terminal EBITDA margin of 45% | Terminal growth of 2% and terminal EBITDA margin of 48%. |
| Our Bear case scenario assumes an overall slowdown of growth and profit margins with less scalability than expected in the Platform segment. | Our Base case scenario assumes that the Platform Services achieves scalability with improved profitability and stable performance from the Media segment. | Our bull case scenario assumes strong profitability on the back of improving scalability and topline growth driven new markets for both Media and Platform. |
Valuation and estimates trend
Finally, looking at the current valuation based on consensus next twelve months GiG trades at around 6x EV/EBITDA which is in the lower end of the range of 5x to 12x during 2020-23. Consensus EPS also continues to trend higher which should be supportive for the share price development going forward.
Investment thesis
Case
Fast growing diversified online gambling B2B supplier
Evidence
Solid track record in Media and M&A synergies supporting margin improvements in Platform
Challenge
Successful clients could migrate to own platforms
Valuation
Base case DCF supported by strong growth and improving margins
Quality Rating
People: 4
GiG's management team since 2019 has delivered a solid turn-around of the company by focusing the business on B2B and divesting B2C operations. The acquisition of Sportnco in 2022 was a great fit and shows good capital allocation skills. Management team has significant shareholdings and the largest shareholder SkyCity is represented on the board.
Business: 3
GiG has an attractive business model with a large share of recurring revenue in both the Media segment and the Platform segment. While there is competition in the platform segment, contracts are typically 3-5 years and historically few customers change its provider. The company's competitive position is improving as it adds more markets and licenses to its offer.
Financials: 3
GiG has significantly improved earnings since it changed its focus towards becoming a pure B2B group. The company's Media segment has delivered consistently strong growth and profitability. Following the acquisition of Sportnco in 2022, the Platform segment is also profitable.
Financials
| Income statement | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 66.8 | 90.1 | 119.8 | 142.3 | 167.2 |
| Cost of Revenue | 0.40 | 0.91 | 1.2 | 1.4 | 1.7 |
| Operating Expenses | 45.7 | 56.7 | 66.4 | 73.5 | 84.7 |
| EBITDA | 20.7 | 32.5 | 52.3 | 67.4 | 80.8 |
| Depreciation | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Amortizations | 13.7 | 20.6 | 26.8 | 26.8 | 26.8 |
| EBIT | 7.0 | 11.9 | 25.5 | 40.6 | 54.0 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | 8.6 | 7.9 | 4.0 | 2.0 | 2.0 |
| Net Financial Items | -7.1 | -4.0 | -4.0 | -2.0 | -2.0 |
| EBT | -0.17 | 7.9 | 21.5 | 38.6 | 52.0 |
| Income Tax Expenses | -0.52 | 2.1 | 5.4 | 7.7 | 10.4 |
| Net Income | 0.35 | 5.8 | 16.1 | 30.9 | 41.6 |
| Balance sheet | |||||
| Assets | |||||
| Non-current assets | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Property, Plant and Equipment (Net) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Goodwill | 16.3 | 75.3 | 95.3 | 105.3 | 120.3 |
| Intangible Assets | 31.7 | 61.0 | 52.2 | 45.3 | 41.9 |
| Right-of-Use Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Other Non-Current Assets | 13.5 | 10.2 | 10.2 | 10.2 | 10.2 |
| Total Non-Current Assets | 61.5 | 146.6 | 157.7 | 160.8 | 172.5 |
| Current assets | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Inventories | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Accounts Receivable | 17.6 | 23.2 | 32.4 | 38.4 | 45.1 |
| Other Current Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Cash Equivalents | 8.6 | 15.2 | 20.0 | 47.3 | 76.8 |
| Total Current Assets | 26.1 | 38.4 | 52.4 | 85.8 | 122.0 |
| Total Assets | 87.7 | 185.0 | 210.1 | 246.6 | 294.4 |
| Equity and Liabilities | |||||
| Equity | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Shareholder's Equity | 11.9 | 65.0 | 91.6 | 122.5 | 164.1 |
| Non-current liabilities | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Long Term Debt | 38.9 | 60.9 | 60.9 | 60.9 | 60.9 |
| Long Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Other Long Term Liabilities | 9.4 | 20.7 | 20.7 | 20.7 | 20.7 |
| Total Non-Current Liabilities | 48.3 | 81.6 | 81.6 | 81.6 | 81.6 |
| Current liabilities | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Short Term Debt | 3.9 | 3.8 | 3.8 | 3.8 | 3.8 |
| Short Term Lease Liabilities | 3.2 | 3.2 | 3.2 | 3.2 | 3.2 |
| Accounts Payable | 20.5 | 22.6 | 30.0 | 35.6 | 41.8 |
| Other Current Liabilities | 0.00 | 8.9 | 0.00 | 0.00 | 0.00 |
| Total Current Liabilities | 27.5 | 38.4 | 36.9 | 42.5 | 48.7 |
| Total Liabilities and Equity | 87.7 | 185.0 | 210.1 | 246.6 | 294.4 |
| Cash flow | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Operating Cash Flow | 12.6 | 31.8 | 32.2 | 57.2 | 67.9 |
| Investing Cash Flow | -9.2 | -48.1 | -38.0 | -29.9 | -38.4 |
| Financing Cash Flow | -6.3 | 23.0 | 10.6 | 0.00 | 0.00 |
Rating definitions
The team
Disclosures and disclaimers