GiG: Platform segment reaching new highs

Research Update

2023-05-15

07:32

Redeye updates on GiG following its Q1-results where topline was stronger than expected driven by the Platform segment which also saw solid growth and profitability in the quarter. Overall, we make limited estimate changes following the report and our valuation range is unchanged.

Hjalmar Ahlberg

Anton Hoof

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Solid Q1-results

GiG reported revenue of EUR28.4m in Q1 2023 which was around 5% above our forecast while EBITDA of EUR11.7m was in line with our forecast. On a segmental basis, the Platform segment saw both stronger growth and profitability while Media was somewhat softer than expected. The company saw a good start to Q2 with 30% growth in April which is consistent with our forecast for Q2 2023.

Strong performance in Platform

GiG’s Platform segment reached new highs in the quarter with revenue growth of 52% and an EBITDA-margin of 36%. While the strong outcome was partly driven by a new Enterprise Solution contract which has a high sign-up fee, the overall trend remains positive with potential for continued growth and profitability improvement.

Limited changes to estimates

With the Q1 report being close to our forecast and with a good start to Q2, we make limited changes to our estimates. Our valuation range is unchanged with a base case of SEK45 which implies an EV/EBITDA of 9x 2024E while the share currently trades at 5x EV/EBITDA 2024E.

Key financials

EURm	2021	2022	2023e	2024e	2025e
Revenues	66.8	90.1	120.0	141.7	166.6
Revenue Growth	28.0%	34.9%	33.2%	18.1%	17.5%
EBITDA	20.7	32.5	51.0	66.9	80.2
EBIT	7.0	11.9	25.2	40.1	53.4
EBIT Margin	10.4%	13.2%	21.0%	28.3%	32.1%
Net Income	0.35	5.8	16.5	30.4	41.1
EV/EBITDA	8.4	11.9	7.5	5.3	4.1
EV/EBIT	25.0	32.5	15.2	8.9	6.1

Solid Q1-results

GiG reported Q1-revenue of EUR28.4m, which was c5% above our forecast of EUR27.0m. On a segmental basis, revenue was slightly lower than expected in Media while Platform reported stronger-than-expected sales. Media saw continued strong FTD intake of 110.8k which was an increase of 59% YoY which should support revenue growth going forward.

On EBITDA, the outcome of EUR11.7m was in line with our forecast where the Media segment was lower than expected while Platform was stronger. The lower-than-expected profitability in Media (EBITDA-margin of 44% while we expected 53%) is partly explained by costs owing to the strategic review while marketing costs were also somewhat higher.

GiG results outcome
EURm	Q1 22	Q2 22	Q3 22	Q4 22	Q1 23E	Q1 23A	Diff, %
Revenue	19.1	22.1	22.9	26.0	27.0	28.4	5%
Media Services	14.1	14.8	15.1	17.8	18.7	18.4	-2%
Platform Services	5.0	7.3	7.8	8.2	8.3	10.0	21%

COGS	0.0	-0.2	-0.3	-0.4	-0.3	-0.3	12%
Marketing costs	-3.8	-4.3	-4.6	-6.1	-5.5	-5.7	3%
Other opex	-8.7	-9.3	-9.5	-8.8	-9.5	-10.7	13%

EBITDA adj.	6.5	8.3	8.5	10.7	11.7	11.7	0%
Media Services	6.8	7.0	6.8	8.9	9.8	8.1	-18%
Platform Services	-0.3	1.3	1.7	1.8	1.9	3.6	94%

EBITDA-margin	34.0%	37.6%	37.1%	41.2%	43.3%	41.2%	n.m.

EBIT	2.9	2.4	2.5	4.1	4.5	5.6	25%

EPS, EUR	0.01	0.02	0.01	0.01	0.02	0.03	46%

Source: Redeye Research

Strong performance in Platform

GiG’s Platform segment continues to perform strong where it achieved record revenue and profitability in the quarter. Revenue amounted to EUR10m driven by strong organic growth of 52% and EBITDA was EUR3.6m giving a margin of 36%. The quarter was positively impacted by the new Enterprise Solution contract that was signed in the quarter which includes a significant setup fee. While the signup fee is non-recurring, GiG also estimates that the average yearly contract value from Enterprise Solution contracts will be materially above the current average. Still, it will also add some volatility to the quarterly revenue in the short term while the effect of new contracts should become smaller as more clients are added. As illustrated in the chart below we expect a sequential decline for the segment in Q2 2023 whereafter we expect a strong H2 and end-of-year performance.

GiG: Platform & Sportbook revenue and EBITDA

Source: Redeye Research

Solid start for AskGamblers

The acquisition of Askgamblers and related assets which was completed on January 31 has seen a solid start where the acquired assets have seen growth of 25% since the transaction was closed. GiG has started technology migration where the first website was migrated during May while the remaining are planned before year-end. The company comments that it sees a multitude of short and long-term actions that will deliver growth in the assets. The acquisition contributed to strong performance for Publishing revenue in the Media segment which increased 31% and reached a new all-time-high. Player intake was also strong in Publishing with 49k FTDs (AskGamblers contributed with c7k) representing a growth of 79%. While Paid revenue and FTDs were down sequentially from the strong performance in Q4 2022 during the FIFA WC, the YoY growth remained strong.

Media segment revenue and FTD intake

Source: Redeye Research

Limited estimate changes and unchanged valuation range

With the Q1 report being close to our forecast and with a good start to Q2, we make limited changes to our estimates (2023-25E EBITDA trimmed c1-2%). Our valuation range is unchanged with a base case of SEK45 which implies an EV/EBITDA of 9x 2024E while the share currently trades at 5x EV/EBITDA 2024E. As highlighted in our previous update (see https://www.redeye.se/research/882675/gig-outlook-remains-strong-split-of-business-could-create-valuation-upside) we also see potential for a spit-up of the group to create additional upside where the high-end of a SOTP-valuation yielded SEK52 per share.

The tables below summarise revenue and EBITDA per segment and key financials for the group.

Segment revenue and EBITDA
Revenue, EURm	2021	2022	Q1 23	Q2 23E	Q3 23E	Q4 23E	2023E	2024E	2025E
Media Services	45	62	18.4	20.3	21.0	21.8	81	97	114
Platform Services	21	28	10.0	9.1	9.4	10.0	39	45	52

Total revenue	67	90	28.4	29.4	30.3	31.8	120.0	141.7	166.6

Revenue Growth, %	2021	2022E	Q1 23	Q2 23E	Q3 23E	Q4 23E	2023E	2024E	2025E
Media Services	31%	37%	30%	37%	39%	22%	32%	19%	18%
Platform Services	13%	33%	100%	25%	20%	23%	36%	16%	18%

Total growth, %	24%	35%	49%	33%	33%	22%	33%	18%	18%

EBITDA, EURm	2021	2022E	Q1 23	Q2 23E	Q3 23E	Q4 23E	2023E	2024E	2025E
Media Services	21	30	8.1	10.1	11.0	11.4	41	51	60
Platform Services	1	5	3.6	2.3	2.8	3.5	12	18	22

Group EBITDA	20.7	34.0	11.7	12.4	13.8	15.0	52.9	68.9	82.2

EBITDA-margin, %	2021	2022E	Q1 23	Q2 23E	Q3 23E	Q4 23E	2023E	2024E	2025E
Media Services	46%	48%	44%	50%	53%	53%	50%	53%	53%
Platform Services	6%	16%	36%	25%	30%	35%	32%	40%	43%

Group EBITDA-margin	31%	38%	41%	42%	46%	47%	44%	49%	49%

Source: Redeye Research

Group P&L
EURm	2021	2022	Q1 23	Q2 23E	Q3 23E	Q4 23E	2023E	2024E	2025E
Revenue	67	90	28.4	29.4	30.3	31.8	120	142	167
Growth YoY, %	28%	35%	49%	33%	33%	22%	33%	18%	18%
Organic, %	24%	27%	19%	15%	15%	7%	14%	18%	18%
Acquired, %	0%	8%	30%	18%	18%	15%	20%	1%	0%

Cost of sales	0	-1	-0.3	-0.3	-0.3	-0.3	-1	-1	-2
Gross profit	66	89	28.1	29.1	30.0	31.5	119	140	165

Marketing costs	-11	-19	-5.7	-6.2	-5.2	-4.6	-22	-21	-28
Other operating costs	-35	-36	-10.7	-10.5	-11.0	-12.0	-44	-50	-55
Total opex	-46	-55	-16.4	-16.7	-16.2	-16.6	-66	-71	-83

EBITDA adj.	20.9	34.0	11.7	12.4	13.8	15.0	52.9	68.9	82.2
EBITDA-Margin, %	31%	38%	41%	42%	46%	47%	44%	49%	49%

Non-recurring	0	-2	-0.4	-0.5	-0.5	-0.5	-2	-2	-2
EBITDA	21	32	11.3	11.9	13.3	14.5	51	67	80
EBITDA-Margin, %	31%	36%	40%	41%	44%	45%	42%	47%	48%

D&A	-13.7	-20.6	-5.7	-6.7	-6.7	-6.7	-25.8	-26.8	-26.8
EBIT	7.0	11.9	5.6	5.2	6.6	7.8	25.2	40.1	53.4
EBIT-Margin, %	10%	13%	20%	18%	22%	24%	21%	28%	32%

Net finance	-7	-4	-1.4	-1.0	-1.0	-1.0	-4	-2	-2
Tax	1	-2	-0.2	-1.1	-1.4	-1.7	-4	-8	-10
Net profit	0	6	4.0	3.2	4.2	5.1	17	30	41

EPS	0.00	0.05	0.03	0.02	0.03	0.04	0.13	0.24	0.32

Source: Redeye Research

Investment thesis

Case

Fast growing diversified online gambling B2B supplier

With a broad product offer in online gambling B2B services including player account management, sportsbook and front end together with a strong affiliate product, Gaming Innovation Group has an attractive and well diversified business. The company has a strong position in its market niche focusing on smaller operators as well as large traditional offline casino groups entering online markets and providing larger online operators with products for its non-core markets. Gaming Innovation Group is a high growth company targeting annual growth of 20% as well as highly profitable with a target to achieve an EBITDA-margin in excess of 50% during 2024 (2022 c36%). We view the financial targets as credible supporting a positive view based on strong earnings growth for several years ahead.

Evidence

Solid track record in Media and M&A synergies supporting margin improvements in Platform

Gaming Innovation Group has seen solid growth and profitability improvements after it divested its B2C operations in 2020 to become fully focused on B2B. The Media segment has been the strongest part of the business since then seeing annual growth of 30% in 2021-22 and EBITDA-margin of around 47-48% coupled with strong cash generation. The Platform business managed to become EBITDA-positive in 2021 and with the acquisition of Sportnco in 2022 it has achieved solid profitability with an EBITDA-margin of around 20% in 2022. GiG sees strong synergies from the acquisition with Sportnco supporting its ambition to achieve 50% EBITDA during 2024.

Challenge

Successful clients could migrate to own platforms

We believe a potential challenge for Gaming Innovation Group is that successful clients that become larger groups with more resources could opt to move their platform inhouse. This has been seen in some examples where large online gambling operators for example creates their own sportsbook operations instead of using suppliers. While this could happen to GiG, we believe its large client portfolio (41 clients in 2022) as well customer target group reduces this risk.

Valuation

Base case DCF supported by strong growth and improving margins

We find a base case valuation of SEK45 per share for GiG which is derived from a DCF-valuation. The base case implies an EV/EBITDA multiple of c. 9x on our 2024E EBITDA while the share has historically traded in a range of 5x to 12x twelve months forward EBITDA. Our base case assumes growth of around 12% over 2024-28 and 4% over 2029-38 with a terminal growth of 2% by 2038E. We estimate an expanding EBITDA-margin reaching 50% by 2028E whereafter we assume a gradual decline towards a terminal EBITDA-margin of 45% by 2038E.

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	120.0	141.7	166.6
Cost of Revenue	0.40	0.91	1.2	1.4	1.7
Operating Expenses	45.7	56.7	67.8	73.5	84.7
EBITDA	20.7	32.5	51.0	66.9	80.2
Depreciation	0.00	0.00	0.00	0.00	0.00
Amortizations	13.7	20.6	25.8	26.8	26.8
EBIT	7.0	11.9	25.2	40.1	53.4
Shares in Associates	0.00	0.00	0.00	0.00	0.00
Interest Expenses	8.6	7.9	5.0	2.0	2.0
Net Financial Items	-7.1	-4.0	-4.4	-2.0	-2.0
EBT	-0.17	7.9	20.8	38.1	51.4
Income Tax Expenses	-0.52	2.1	4.3	7.6	10.3
Net Income	0.35	5.8	16.5	30.4	41.1
Balance sheet
Assets
Non-current assets
EURm	2021	2022	2023e	2024e	2025e
Property, Plant and Equipment (Net)	0.00	0.00	0.26	0.26	0.26
Goodwill	16.3	75.3	95.3	105.3	120.3
Intangible Assets	31.7	61.0	53.7	46.7	43.3
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	159.5	162.5	174.1
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	38.3	45.0
Other Current Assets	0.00	0.00	0.00	0.00	0.00
Cash Equivalents	8.6	15.2	18.7	45.6	74.7
Total Current Assets	26.1	38.4	51.1	83.9	119.7
Total Assets	87.7	185.0	210.6	246.4	293.8
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	92.0	122.5	163.6
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	35.4	41.6
Other Current Liabilities	0.00	8.9	0.00	0.00	0.00
Total Current Liabilities	27.5	38.4	36.9	42.4	48.6
Total Liabilities and Equity	87.7	185.0	210.6	246.4	293.8
Cash flow
EURm	2021	2022	2023e	2024e	2025e
Operating Cash Flow	12.6	31.8	31.6	56.8	67.4
Investing Cash Flow	-9.2	-48.1	-38.7	-29.8	-38.3
Financing Cash Flow	-6.3	23.0	10.6	0.00	0.00

Rating definitions

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