GiG: Strong Q2 and solid outlook
Research Update
2023-08-23
06:59
Redeye updates on GiG following its Q2-results which came in stronger than expected driven by strong profitability in the Platform & Sportsbook segment. The company has seen a good start to Q3 and the new guidance for 2023 suggests a strong outlook for H2 2023. We raise our estimates and valuation range.
HA
AH
Hjalmar Ahlberg
Anton Hoof
GiG reported 6% better topline and 12% better EBITDA than we expected for Q2 2023. The beat on EBITDA was mainly driven by the Platform & Sportsbook segment which saw a continued margin expansion. Media Services saw more growth than expected which came on the back of AskGamblers which has seen very strong performance since it was acquired in Q1.
GiG also saw a solid start to Q3 with growth of 30% in July while it gives new guidance for 2023 where it expects to achieve revenue of EUR125m-130m with an adjusted EBITDA-margin of 47-50%. The company also reiterates its target of achieving an EBITDA-margin in excess of 50% during 2024 and its long term annual growth target of around 20%.
With stronger than expected Q2-results and a positive outlook we have raised our 2023E EBITDA with 13% and 2024-25E with 10%. On the back of this, we also increase our base case valuation to SEK52 (SEK45) which implies a valuation of 9x 2024E EBITDA while the share currently trades at 5x 2024E EBITDA.
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 66.8 | 90.1 | 127.7 | 150.7 | 177.1 |
| Revenue Growth | 28.0% | 34.9% | 41.7% | 18.1% | 17.5% |
| EBITDA | 20.7 | 32.3 | 57.8 | 73.7 | 88.3 |
| EBITDA Margin | 31.0% | 35.9% | 45.2% | 48.9% | 49.8% |
| EBIT | 7.0 | 11.7 | 30.8 | 45.3 | 59.9 |
| EBIT Margin | 10.4% | 13.0% | 24.1% | 30.0% | 33.8% |
| Net Income | 0.35 | 5.6 | 21.7 | 33.0 | 46.3 |
| EV/EBITDA | 8.4 | 12.0 | 6.5 | 4.7 | 3.5 |
| EV/EBIT | 25.0 | 33.0 | 12.1 | 7.6 | 5.2 |
GiG reported Q2 revenue of EUR31.1m which was 6% above our forecast of EUR29.4m. The beat on topline was mainly driven by the Media segment which saw organic growth of 20% while strong performance from AskGamblers resulted in total growth of 47%. Platform & Sportsbook reported slightly stronger revenue while EBITDA was much stronger as the segment was able to expand margin sequentially from Q1 2023 despite slightly lower revenue.
The company reported total group EBITDA of EUR14.0m which was 12% above our forecast of EUR12.4m. This represents a margin of 45% which is up from 38% in Q2 2022 and 41% in Q1 2023 and the company is gradually closing in on its target of above 50% EBITDA-margin during 2024.
GiG also updates on the progress of the ongoing split-up of the business which will be operationally ready by year-end while execution is expected during H1 2024. The company has recruited Richard Carter, with a previous background as CEO of SB Tech and Bragg, as CEO for the Platform & Sportsbook segment. This follows the earlier announcement that Richard Brown is stepping down as group CEO by year-end while Jonas Warrer, who has led the Media segment since 2019, has been appointed as CEO for GiG Media.
The table below illustrates the Q2-results outcome vs our forecast.
| GiG results outcome | |||||||
| EURm | Q2 22 | Q3 22 | Q4 22 | Q1 23 | Q2 23E | Q2 23A | Diff, % |
| Revenue | 22.1 | 22.9 | 26.0 | 28.4 | 29.4 | 31.1 | 6% |
| Media Services | 14.8 | 15.1 | 17.8 | 18.4 | 20.3 | 21.7 | 7% |
| Platform Services | 7.3 | 7.8 | 8.2 | 10.0 | 9.1 | 9.3 | 2% |
| COGS | -0.2 | -0.3 | -0.4 | -0.3 | -0.3 | -0.3 | -14% |
| Marketing costs | -4.3 | -4.6 | -6.1 | -5.7 | -6.2 | -6.2 | -1% |
| Other opex | -9.3 | -9.5 | -8.8 | -10.7 | -10.5 | -10.7 | 2% |
| EBITDA adj. | 8.3 | 8.5 | 10.7 | 11.7 | 12.4 | 14.0 | 12% |
| Media Services | 7.0 | 6.8 | 8.9 | 8.1 | 10.1 | 10.3 | 2% |
| Platform Services | 1.3 | 1.7 | 1.8 | 3.6 | 2.3 | 3.7 | 62% |
| EBITDA-margin | 37.6% | 37.1% | 41.2% | 41.2% | 42.2% | 45.0% | n.m. |
| EBIT | 2.4 | 2.5 | 4.1 | 5.6 | 5.2 | 6.6 | 26% |
| EPS, EUR | 0.02 | 0.01 | 0.01 | 0.03 | 0.02 | 0.05 | 101% |
| Source: Redeye Research |
GiG’s Media Services continues to perform strong with solid topline growth and strong profitability where the acquisition of AskGamblers is off to a very strong start. GiG comments that AskGamblers has increased revenue with 45% and doubled EBITDA, comparing July to January when the assets were acquired. Player intake is also up 40% and the company sees potential for continued growth of the acquired assets.
In addition to the strong performance from AskGamblers, the segment also saw solid organic growth driven among other by the media partnership with News UK and from social media channels where the company has significantly increased its presence. GiG further highlights that the Media business saw a continued positive effect on traffic following the Google update in Q1.
With an FTD intake of 109.4k during the quarter (YoY increase of 38%), GiG also builds for continued growth going forward as 95% of FTDs are on revenue-share or hybrid contracts. Similar to Q1 2023, GiG saw strong FTD intake from its Publishing business which increased FTDs by 126% YoY and 19% sequentially, while Paid generated a lower share of FTDs owing to few sports events during the summer period.
In summary, the solid Q2-report and outlook confirm our positive view on the Media segment and as illustrated below we expect continued strong performance going forward.
| Media Services: Revenue and EBITDA | |||||||||
| EURm | 2021 | 2022 | Q1 23 | Q2 23 | Q3 23E | Q4 23E | 2023E | 2024E | 2025E |
| Revenue | 45 | 62 | 18.4 | 21.7 | 22.9 | 24.6 | 88 | 104 | 123 |
| Growth, % | 31% | 37% | 30% | 47% | 51% | 38% | 42% | 19% | 18% |
| EBITDA | 21 | 30 | 8.1 | 10.3 | 11.4 | 13.0 | 43 | 55 | 64 |
| EBITDA-margin | 46% | 48% | 44% | 47% | 50% | 53% | 49% | 53% | 53% |
| Source: Redeye Research |
GiG Media: Revenue and EBITDA 2020-25E
Source: Redeye Research
The Platform & Sportsbook segment surprised positively with an EBITDA-margin of c40% despite a sequential decline in revenue compared to Q1 2023 which saw a boost from a new Enterprise Solution contract. The company highlights that performance on a quarterly basis can continue to fluctuate going forward owing to setup fees and impact from new Enterprise Solution contracts.
Looking at the revenue mix per region, the segment saw very strong growth in LatAm where the operator share of GGR increased to 23.4% in Q2 2023 compared to 14.1% in Q1 2023. The share of GGR from regulated or soon to be regulated markets also slightly increased to 92% in Q2 2023 compared to 91% in Q1 2023.
Coming to the outlook, GiG highlights that five new brands have gone live in Q3 2023 and that there are 14 brands in the integration pipeline. As such, we continue to forecast strong topline growth and margin improvement owing to operating leverage and good cost control.
| Platform & Sportsbook: Revenue and EBITDA | |||||||||
| EURm | 2021 | 2022 | Q1 23 | Q2 23 | Q3 23E | Q4 23E | 2023E | 2024E | 2025E |
| Revenue | 21 | 28 | 10.0 | 9.3 | 9.9 | 10.9 | 40 | 46 | 54 |
| Growth, % | 13% | 33% | 100% | 27% | 28% | 33% | 42% | 16% | 18% |
| EBITDA | 1 | 5 | 3.6 | 3.7 | 4.2 | 5.2 | 17 | 21 | 26 |
| EBITDA-margin | 6% | 16% | 36% | 40% | 43% | 48% | 42% | 45% | 48% |
| Source: Redeye Research |
Platform & Sportsbook: Revenue and EBITDA 2020-25E
Source: Redeye Research
On the back of the stronger-than-expected Q2-results coupled with a solid start to Q3 (revenue growth of 30% in July) and the new 2023 guidance (EUR125m-130m in revenue with adjusted EBITDA-margin of 47-50%), we have raised our 2023E EBITDA with 13%. We continue to forecast topline growth of 18% for 2024-25E and with a higher base for 2023 coupled with slightly higher profitability our 2024-25E EBITDA estimates are increased by 10%. The table summarise key financials for 2021-25E.
| GiG: Group P&L | |||||||||
| EURm | 2021 | 2022 | Q1 23 | Q2 23 | Q3 23E | Q4 23E | 2023E | 2024E | 2025E |
| Revenue | 67 | 90 | 28.4 | 31.0 | 32.8 | 35.4 | 128 | 151 | 177 |
| Growth YoY, % | 28% | 35% | 49% | 40% | 43% | 36% | 42% | 18% | 18% |
| Organic, % | 24% | 27% | 19% | 22% | 15% | 10% | 16% | 18% | 18% |
| Acquired, % | 0% | 8% | 30% | 18% | 28% | 26% | 26% | 1% | 0% |
| Cost of sales | 0 | -1 | -0.3 | -0.3 | -0.3 | -0.4 | -1 | -2 | -2 |
| Gross profit | 66 | 89 | 28.1 | 30.7 | 32.5 | 35.1 | 126 | 149 | 175 |
| Marketing costs | -11 | -19 | -5.7 | -6.1 | -5.8 | -4.9 | -22 | -23 | -30 |
| Other operating costs | -35 | -36 | -10.7 | -10.7 | -11.0 | -12.0 | -44 | -50 | -55 |
| Total opex | -46 | -55 | -16.4 | -16.7 | -16.8 | -16.9 | -67 | -74 | -85 |
| EBITDA adj. | 20.9 | 34.0 | 11.7 | 14.0 | 15.7 | 18.2 | 59.5 | 75.7 | 90.3 |
| EBITDA-Margin, % | 31% | 38% | 41% | 45% | 48% | 51% | 47% | 50% | 51% |
| Non-recurring | 0 | -2 | -0.4 | -0.3 | -0.5 | -0.5 | -2 | -2 | -2 |
| EBITDA | 21 | 32 | 11.3 | 13.7 | 15.2 | 17.7 | 58 | 74 | 88 |
| EBITDA-Margin, % | 31% | 36% | 40% | 44% | 46% | 50% | 45% | 49% | 50% |
| D&A | -13.7 | -20.6 | -5.7 | -7.1 | -7.1 | -7.1 | -26.9 | -28.4 | -28.4 |
| EBIT | 7.0 | 11.7 | 5.6 | 6.6 | 8.1 | 10.6 | 30.8 | 45.3 | 59.9 |
| EBIT-Margin, % | 10% | 13% | 20% | 21% | 25% | 30% | 24% | 30% | 34% |
| Net finance | -7 | -4 | -1.4 | 0.1 | -2.0 | -2.0 | -5 | -4 | -2 |
| Tax | 1 | -2 | -0.2 | 0.0 | -1.5 | -2.1 | -4 | -8 | -12 |
| Net profit | 0 | 6 | 4.0 | 6.7 | 4.5 | 6.4 | 22 | 33 | 46 |
| EPS | 0.00 | 0.05 | 0.03 | 0.05 | 0.04 | 0.05 | 0.17 | 0.26 | 0.36 |
| Source: Redeye Research |
On the back of the increased estimates, we also raise our valuation where our new base case stands at SEK52 (SEK45) while the bull case is increased to SEK80 (SEK71) and the bear case to SEK27 (SEK26). The table below summarises key assumptions for our valuation scenarios.
| GiG: Fair Value Range | |||
| SEK | Bear Case | Base Case | Bull Case |
| Value per share | 27 | 52 | 80 |
| Revenue CAGR 2024-2028 | 6% | 12% | 16% |
| Revenue CAGR 2029-2038 | 3% | 4% | 7% |
| Growth Terminal | 2% | 2% | 2% |
| EBITDA-margin 2024-2038 | 42% | 48% | 51% |
| EBITDA Terminal | 40% | 45% | 48% |
| Source: Redeye Research |
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
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.
| Income statement | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 66.8 | 90.1 | 127.7 | 150.7 | 177.1 |
| Cost of Revenue | 0.40 | 0.91 | 1.2 | 1.5 | 1.8 |
| Operating Expenses | 45.7 | 56.9 | 68.7 | 75.6 | 87.1 |
| EBITDA | 20.7 | 32.3 | 57.8 | 73.7 | 88.3 |
| Depreciation | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Amortizations | 13.7 | 20.6 | 26.9 | 28.4 | 28.4 |
| EBIT | 7.0 | 11.7 | 30.8 | 45.3 | 59.9 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | 8.6 | 7.9 | 8.0 | 4.0 | 2.0 |
| Net Financial Items | -7.1 | -4.0 | -5.3 | -4.0 | -2.0 |
| EBT | -0.17 | 7.7 | 25.5 | 41.3 | 57.9 |
| Income Tax Expenses | -0.52 | 2.1 | 3.8 | 8.3 | 11.6 |
| Net Income | 0.35 | 5.6 | 21.7 | 33.0 | 46.3 |
| Balance sheet | |||||
| Assets | |||||
| Non-current assets | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Property, Plant and Equipment (Net) | 0.00 | 0.00 | 0.34 | 0.34 | 0.34 |
| Goodwill | 16.3 | 75.3 | 95.3 | 105.3 | 120.3 |
| Intangible Assets | 31.7 | 61.0 | 53.2 | 45.9 | 42.3 |
| 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 | 159.1 | 161.8 | 173.2 |
| 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 | 34.5 | 40.7 | 47.8 |
| Other Current Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Cash Equivalents | 8.6 | 15.2 | 23.8 | 53.7 | 88.0 |
| Total Current Assets | 26.1 | 38.4 | 58.3 | 94.4 | 135.9 |
| Total Assets | 87.7 | 185.0 | 217.4 | 256.2 | 309.1 |
| 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 | 97.0 | 130.0 | 176.3 |
| 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 | 31.9 | 37.7 | 44.3 |
| Other Current Liabilities | 0.00 | 8.9 | 0.00 | 0.00 | 0.00 |
| Total Current Liabilities | 27.5 | 38.4 | 38.8 | 44.6 | 51.2 |
| Total Liabilities and Equity | 87.7 | 185.0 | 217.4 | 256.2 | 309.1 |
| Cash flow | |||||
| EURm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Operating Cash Flow | 12.6 | 31.8 | 37.8 | 60.9 | 74.2 |
| Investing Cash Flow | -9.2 | -48.1 | -39.5 | -31.1 | -39.8 |
| Financing Cash Flow | -6.3 | 23.0 | 10.3 | 0.00 | 0.00 |
Disclosures and disclaimers