Evolution: Continues to perform
Research Update
2023-04-28
07:37
Redeye updates on Evolution post Q1-results which came in somewhat above our expectations driven by strong profitability. We have slightly increased our topline and profitability forecasts resulting in EBITDA increases of 2-4% over 2023-25E.
HA
AH
Hjalmar Ahlberg
Anton Hoof
Evolution reported strong Q1-results with revenue coming in slightly above our forecasts while solid cost control supported an EBITDA beat of 3%. The company reiterates its margin guidance of 68-71% for 2023E.
Evolution saw total growth of c32% in Q1 driven by Asia and LatAm. Growth in Live Casino was slightly better than expected while RNG continued to see soft development with proforma organic growth around zero.
We have slightly increased our revenue estimates on the back of the strong growth in Asia. With slower-than-expected cost growth we have also increased our EBITDA-margin forecasts supporting total EBITDA estimate increase of 2-4% for 2023-25E. On the back of the increased estimates our base case is increased to SEK1,650 (SEK1,600) which implies an EV/EBITDA of 25x 2023E and 20x 2024E.
EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
Revenues | 1,068.8 | 1,456.7 | 1,858.9 | 2,258.9 | 2,652.4 |
Revenue Growth | 90.4% | 36.3% | 27.6% | 21.5% | 17.4% |
EBITDA | 734.7 | 1,008.4 | 1,294.9 | 1,574.6 | 1,847.1 |
EBITDA Margin | 68.7% | 69.2% | 69.7% | 69.7% | 69.6% |
EBIT | 654.1 | 908.1 | 1,173.3 | 1,416.5 | 1,661.4 |
EBIT Margin | 61.2% | 62.3% | 63.1% | 62.7% | 62.6% |
Net Income | 605.5 | 843.4 | 1,080.8 | 1,289.0 | 1,495.3 |
EV/EBITDA | 36.0 | 21.9 | 19.8 | 15.8 | 13.0 |
EV/EBIT | 40.5 | 24.4 | 21.8 | 17.6 | 14.5 |
P/E | 44.5 | 26.9 | 24.8 | 20.8 | 17.9 |
Evolution reported revenue of EUR430m (growth of 32%) for Q1 2023 which was c1% above our forecast of EUR427m where Live Casino segment performed stronger than expected while RNG was below our estimate.
On a regional basis, both Asia and Europe saw stronger revenue than expected while North America was somewhat lower than forecasted. The company has also separated LatAm into a new segment as it has seen strong growth (74% in the quarter) and has become a larger part of the group.
The company reported EBITDA of EUR300m which was c3% above our forecast of EUR292m. The EBITDA-margin was 70% while we had forecasted 68% where the main deviation was lower-than-expected personnel expenses.
Evolution Results outcome | |||||||
EURm | Q1 22 | Q2 22 | Q3 22 | Q4 22 | Q1 23E | Q1 23A | Diff, % |
Revenue | 327 | 344 | 379 | 407 | 427 | 430 | 1% |
Live casino | 265 | 278 | 310 | 335 | 354 | 360 | 2% |
RNG | 62 | 65 | 68 | 73 | 73 | 70 | -4% |
Europe | 152 | 152 | 159 | 170 | 170 | 174 | 2% |
Asia | 103 | 111 | 128 | 136 | 145 | 154 | 6% |
North America | 37 | 46 | 50 | 56 | 61 | 57 | -6% |
LatAm | 17 | 19 | 25 | 27 | n.a. | 30 | n.a. |
Other | 17 | 16 | 17 | 18 | n.a. | 15 | n.a. |
Operating expenses | -97 | -106 | -118 | -128 | -135 | -129 | -4% |
Personnel expenses | -63 | -68 | -76 | -82 | -88 | -83 | -6% |
Other opex | -34 | -37 | -41 | -46 | -47 | -46 | 0% |
EBITDA | 230 | 238 | 261 | 280 | 292 | 300 | 3% |
EBITDA-margin | 70% | 69% | 69% | 69% | 68% | 70% | |
EBIT | 207 | 215 | 236 | 250 | 260 | 271 | 4% |
EPS | 0.93 | 0.94 | 1.04 | 1.05 | 1.12 | 1.18 | 5% |
Source: Redeye Research |
Evolution saw lower than usual growth in the number of employees during the quarter while the cost per employee was also down compared to Q4 2022. Looking forward, we assume that employee growth will be back to the normal trend and that cost per employee will increase. However, this still supports a higher profitability and with our new costs assumptions the EBITDA-margin is forecasted to around 70% for 2023-25E while we had previously estimated 69%. The chart below illustrates the cost development per quarter from Q1 2021 to Q4 2023E.
Evolution: Personnel and other costs Q1 2021 to Q4 2023E
Coming to our growth forecasts, the stronger-than-expected performance in Asia and LatAm supports increased growth forecasts although this is somewhat counteracted by the lower-than-expected growth in North America. Commenting on the performance per segment, Evolution states that although RNG only grew slightly organically it remains convinced that the segment can perform better while the path towards double-digit growth will not be linear. Overall, we expected continued growth albeit gradually lower as the company becomes larger while we expect profitability to remain on current levels over the next years.
Evolution revenue and EBITDA 2017-25E
We have increased our revenue forecasts by 1-2% for 2023-25E while EBITDA estimates are up 2-4%. The tables below summarise our revenue forecasts per segment and region together with group key financials for 2020-25E.
Evolution: Segment revenue mix | ||||||||||
Revenue, EURm | 2020 | 2021 | 2022 | Q1 23 | Q2 23E | Q3 23E | Q4 23E | 2023E | 2024E | 2025E |
Live Casino | 544 | 839 | 1,188 | 360 | 376 | 400 | 435 | 1,571 | 1,949 | 2,318 |
RNG | 18 | 230 | 268 | 69 | 72 | 72 | 75 | 288 | 310 | 335 |
Total | 561 | 1,069 | 1,457 | 430 | 447 | 472 | 510 | 1,859 | 2,259 | 2,652 |
Growth, % | 2020 | 2021 | 2022 | Q1 23 | Q2 23E | Q3 23E | Q4 23E | 2023E | 2024E | 2025E |
Live Casino | 49% | 54% | 42% | 36% | 35% | 29% | 30% | 32% | 24% | 19% |
RNG | n.m. | n.m. | 17% | 12% | 9% | 6% | 4% | 7% | 8% | 8% |
Total growth, % | 54% | 90% | 36% | 31% | 30% | 25% | 25% | 28% | 22% | 17% |
Source: Redeye Research |
Evolution: Regional revenue mix | ||||||||||
Revenue, EURm | 2020 | 2021 | 2022 | Q1 23 | Q2 23E | Q3 23E | Q4 23E | 2023E | 2024E | 2025E |
Europe | 343 | 571 | 633 | 174 | 175 | 175 | 187 | 710 | 760 | 813 |
Asia | 126 | 286 | 478 | 154 | 161 | 173 | 184 | 671 | 873 | 1,068 |
North America | 37 | 115 | 189 | 57 | 62 | 68 | 76 | 263 | 341 | 426 |
LatAm | n.a. | n.a. | 88 | 30 | 34 | 40 | 43 | 147 | 208 | 256 |
Other | 56 | 96 | 68 | 15 | 16 | 17 | 20 | 68 | 78 | 89 |
Total revenue | 561 | 1,069 | 1,457 | 430 | 447 | 472 | 510 | 1,859 | 2,259 | 2,652 |
Growth, % | 2020 | 2021 | 2022 | Q1 23 | Q2 23E | Q3 23E | Q4 23E | 2023E | 2024E | 2025E |
Europe | 33% | 67% | 11% | 14% | 15% | 10% | 10% | 12% | 7% | 7% |
Asia | 153% | 128% | 67% | 49% | 45% | 35% | 35% | 40% | 30% | 22% |
North America | 70% | 206% | 65% | 56% | 35% | 35% | 35% | 39% | 29% | 25% |
LatAm | - | - | - | 74% | 75% | 60% | 60% | 66% | 42% | 23% |
Other | 57% | 73% | -30% | -15% | 0% | 5% | 10% | 0% | 15% | 15% |
Total growth, % | 54% | 90% | 36% | 31% | 30% | 25% | 25% | 28% | 22% | 17% |
Source: Redeye Research |
Evolution: Key Financials | ||||||||||
EURm | 2020 | 2021 | 2022 | Q1 23 | Q2 23E | Q3 23E | Q4 23E | 2023E | 2024E | 2025E |
Revenue | 561 | 1,069 | 1,457 | 430 | 447 | 472 | 510 | 1,859 | 2,259 | 2,652 |
Growth Y/Y (%) | 54% | 90% | 36% | 31% | 30% | 25% | 25% | 28% | 22% | 17% |
Personnel costs | -134 | -207 | -290 | -83 | -89 | -95 | -101 | -367 | -453 | -537 |
Other costs | -76 | -127 | -159 | -46 | -47 | -50 | -54 | -197 | -232 | -269 |
EBITDA | 352 | 735 | 1,008 | 300 | 312 | 328 | 355 | 1,295 | 1,575 | 1,847 |
EBITDA-margin | 63% | 69% | 69% | 70% | 70% | 69% | 70% | 70% | 70% | 70% |
EBIT | 319 | 654 | 908 | 271 | 282 | 297 | 322 | 1,173 | 1,416 | 1,661 |
EBIT-margin | 57% | 61% | 62% | 63% | 63% | 63% | 63% | 63% | 63% | 63% |
Net income | 285 | 605 | 843 | 251 | 260 | 274 | 296 | 1,081 | 1,289 | 1,495 |
EPS, EUR | 1.7 | 2.8 | 4.0 | 1.2 | 1.2 | 1.3 | 1.4 | 5.1 | 6.0 | 7.0 |
Source: Redeye Research |
On the back of the increased estimates, we have also raised our valuation range where the new base case stands at SEK1,650 (SEK1,600) with a bull case of SEK2,650 (SEK2,600) and a bear case of SEK1,250 (SEK1,200). Looking at the current valuation compared to the historical range, Evolution trades at c19x EBITDA NTM which is slightly below its average of 22x. Our base case of SEK1,650 implies an EV/EBITDA of 25x 2023E and 20x 2024E.
Case
Market leading platform company with long runway for growth
Evidence
Strong track record and large market opportunity
Challenge
Emerging competition and regulatory risks
Valuation
Base case DCF supported by strong growth and profitability
People: 4
We judge management and the board as very capable. They bring solid experience and impressive track records in the industry, where several of them have extensive experience. We view the company's communication as transparent and honest. The company has a strong ownership structure with the board, management and founders having significant ownership, creating strong alignment with minority owners and supporting long-term shareholder value. Furthermore, the company has several institutional owners which we view as positive.
Business: 4
Evolution Gaming has an impressive track record with a market-leading position and a wide revenue base with rapid growth in all markets. It has defensive moats in both technology and organization supporting pricing power and an impressive return on capital.
Financials: 5
Evolution Gaming has a strong cash position and very solid cash flow, which supports it taking M&A opportunities. The company has an impressive return on both equity and invested capital. We expect that it will maintain strong profit margins and EPS growth in the years to come. The company has increased its dividend rapidly without jeopardising its financial position or growth possibilities.
Income statement | |||||
EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
Revenues | 1,068.8 | 1,456.7 | 1,858.9 | 2,258.9 | 2,652.4 |
Cost of Revenue | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Operating Expenses | 334.1 | 448.3 | 564.0 | 684.2 | 805.3 |
EBITDA | 734.7 | 1,008.4 | 1,294.9 | 1,574.6 | 1,847.1 |
Depreciation | 0.00 | 0.00 | 9.3 | 11.3 | 13.3 |
Amortizations | 80.6 | 100.4 | 112.3 | 146.8 | 172.4 |
EBIT | 654.1 | 908.1 | 1,173.3 | 1,416.5 | 1,661.4 |
Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Interest Expenses | 6.5 | 0.00 | 0.00 | 0.00 | 0.00 |
Net Financial Items | -6.5 | -1.5 | -1.4 | 0.00 | 0.00 |
EBT | 647.5 | 906.6 | 1,171.9 | 1,416.5 | 1,661.4 |
Income Tax Expenses | 42.1 | 63.2 | 91.1 | 127.5 | 166.1 |
Net Income | 605.5 | 843.4 | 1,080.8 | 1,289.0 | 1,495.3 |
Balance sheet | |||||
Assets | |||||
Non-current assets | |||||
EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
Property, Plant and Equipment (Net) | 80.2 | 111.0 | 176.1 | 255.1 | 348.0 |
Goodwill | 2,188.5 | 2,315.3 | 2,315.3 | 2,315.3 | 2,315.3 |
Intangible Assets | 757.3 | 742.9 | 677.1 | 586.8 | 480.7 |
Right-of-Use Assets | 54.3 | 67.9 | 67.9 | 67.9 | 67.9 |
Other Non-Current Assets | 13.5 | 22.8 | 22.8 | 22.8 | 22.8 |
Total Non-Current Assets | 3,093.7 | 3,260.0 | 3,259.2 | 3,247.9 | 3,234.7 |
Current assets | |||||
EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
Inventories | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Accounts Receivable | 200.7 | 277.0 | 371.8 | 451.8 | 530.5 |
Other Current Assets | 187.3 | 299.8 | 371.8 | 451.8 | 530.5 |
Cash Equivalents | 421.4 | 532.6 | 1,156.5 | 1,864.4 | 2,677.2 |
Total Current Assets | 809.4 | 1,109.4 | 1,900.1 | 2,767.9 | 3,738.2 |
Total Assets | 3,903.1 | 4,369.4 | 5,159.3 | 6,015.9 | 6,972.9 |
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 | 3,191.0 | 3,460.3 | 4,114.7 | 4,863.3 | 5,714.1 |
Non-current liabilities | |||||
EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
Long Term Debt | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Long Term Lease Liabilities | 53.2 | 65.2 | 65.2 | 65.2 | 65.2 |
Other Non-Current Lease Liabilities | 288.8 | 418.0 | 418.0 | 418.0 | 418.0 |
Total Non-Current Liabilities | 342.0 | 483.2 | 483.2 | 483.2 | 483.2 |
Current liabilities | |||||
EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
Short Term Debt | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Short Term Lease Liabilities | 14.6 | 14.4 | 14.4 | 14.4 | 14.4 |
Accounts Payable | 8.6 | 10.1 | 37.2 | 45.2 | 53.0 |
Other Current Liabilities | 346.9 | 401.4 | 509.8 | 609.8 | 708.2 |
Total Current Liabilities | 370.1 | 425.9 | 561.4 | 669.4 | 775.6 |
Total Liabilities and Equity | 3,903.1 | 4,369.4 | 5,159.3 | 6,015.9 | 6,972.9 |
Cash flow | |||||
EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
Operating Cash Flow | 598.9 | 877.5 | 1,171.2 | 1,395.1 | 1,629.8 |
Investing Cash Flow | -155.7 | -371.6 | -120.8 | -146.8 | -172.4 |
Financing Cash Flow | -248.5 | -394.2 | -426.4 | -540.4 | -644.5 |
Disclosures and disclaimers