GiG: Strong start to 2024, split-up getting closer

Research Update

2024-02-16

07:32

Redeye updates on GiG following its Q4-results which came in close to our expectations. With a strong start to 2024 we have slightly raised our estimates and valuation range. The company continues to progress on its split-up which is expected to be executed before end of Q2 2024.

Hjalmar Ahlberg

Anton Hoof

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Q4 results close to forecasts

GiG’s Q4-results came in close to our forecasts with Media seeing slightly better-than-expected topline and EBITDA while Platform & Sportsbook came in slightly below our forecast. Looking at the full year development, both segment saw solid performance with Media growing through the AskGamblers acquisition while Platform & Sportsbook saw strong profitability improvement.

Strong start to 2024

Looking into 2024, GiG has seen a strong start with revenue growth of 53% in January, partly driven by the acquisition of KaFe Rocks while organic growth also was strong at 20%. GiG does not provide any updated forecast for the group for 2024, but will come back with new long-term financial targets for the individual businesses as the split approaches where the target is to execute before end of Q2 2024.

Slightly increased estimates and valuation

We have increased our topline and EBITDA estimates for 2024-25E by 1-2%, owning to the strong start to 2024. We also raise our DCF-valuation with a new base case of SEK56 (SEK55). Given the split-up coming closer, we also update our SOP-valuation which indicates a range of SEK37-73 per share (average SEK55).

Key financials

EURm	2022	2023	2024e	2025e	2026e
Revenues	90.1	126.8	174.8	207.5	233.4
Revenue Growth	34.9%	40.7%	37.9%	18.7%	12.5%
EBITDA	32.3	60.1	79.2	100.5	116.7
EBIT	11.7	33.4	50.2	71.5	87.7
EBIT Margin	13.0%	26.3%	28.7%	34.5%	37.6%
Net Income	5.6	16.0	33.7	54.0	67.0
EV/Sales	4.3	3.1	2.3	1.8	1.3
EV/EBITDA	12.0	6.6	5.0	3.7	2.6
EV/EBIT	33.0	11.9	7.9	5.2	3.5

Q4 results close to forecasts

GiG reported revenue of EUR35.6m and EBITDA (adjusted for one-off costs related to the ongoing split-up process) of EUR14.2m while we expected revenue of EUR34.6m and EBITDA of EUR15.2m. Looking at the performance per business unit, Media beat both topline and EBITDA forecasts while Platform & Sportsbook was below our forecasts. The Media business's solid quarter was driven by a continued strong performance from AskGamblers and paid media. FTD intake was strong, increasing 21% QoQ supporting potential for continued growth into 2024. For Platform & Sportsbook, focus has been on the continued strengthening of the organization and its product portfolio following the change of management in Q3 2023. Commenting on the outlook for Platform & Sportsbook, the company states that the sales pipeline has doubled since Q3 2023.

GiG results outcome
EURm	Q4 22	Q1 23	Q2 23	Q3 23	Q4 23E	Q4 23A	Diff, %
Revenue	26.0	28.4	31.0	31.8	34.6	35.6	3%
Media Services	17.8	18.4	21.7	22.5	25.0	26.5	6%
Platform Services	8.2	10.0	9.3	9.3	9.6	9.1	-6%

COGS	-0.4	-0.3	-0.3	-0.3	-0.3	-0.2	-30%
Marketing costs	-6.1	-5.7	-6.1	-6.9	-7.5	-8.9	18%
Other opex	-8.8	-10.7	-10.7	-11.1	-11.5	-13.9	21%

EBITDA adj.	10.7	11.7	14.0	13.6	15.2	14.2	-7%
Media Services	8.9	8.1	10.3	10.4	11.9	12.5	5%
Platform Services	1.8	3.6	3.7	3.2	3.4	1.7	-50%

EBITDA-margin	41.2%	41.2%	45.2%	42.8%	44.0%	39.9%	n.m.

EBIT	4.1	5.6	6.6	16.6	7.8	4.6	-41%

EPS, EUR	0.01	0.03	0.05	0.07	0.03	-0.03	n.m.

Source: Redeye Research

Media continues its strong growth momentum

GiG’s Media segment continues its strong growth momentum with 49% total growth and 24% organic growth in Q4 2023. Player intake was solid with 137.7k FTDs (21% sequential increase) with strong growth from both paid and publishing. Focus on revenue share remains high with 95% of FTD’s being on revenue share contracts or hybrid. Revenue mix in the quarter was slightly more tilted towards listing fees, while the aim is to return to around 65% revenue share mix going forward. We view positively on the strong growth seen in North America where there could be additional potential following the acquisition of KaFe Rocks. Looking into 2024, the company among other highlights growth potential from adding sports to AskGamblers with a target to launch during the UEFA Euro 2024. Finally, FTD intake growth of 39% in January suggests GiG Media is already off to a strong start in 2024, supporting our expectations of continued growth going forward.

GiG Media: Revenue and EBITDA 2020-26E

Source: Redeye Research

Platform & Sportsbook continues to build for growth ramp-up

While Platform & Sportsbook saw somewhat softer Q4 results than expected, the company is making strong progress on ramping up growth going forward. In the Q4-presentation, GiG stated that the sales pipeline has doubled compared to the end of Q3 2024 while it can also target more and larger customers on the back of the improved product suite. Upsell potential was also highlighted with 31% of current clients taking sportsbook while 70% of the pipeline has both products. Together with an integration pipeline of 19 brands the company is set to gradually ramp up revenue. We continue to expect solid growth and margin improvement over the coming years as illustrated in the chart below.

Platform & Sportsbook: Revenue and EBITDA 2020-26E

Source: Redeye Research

Strong start to 2024 supports increased estimates

While Q4-results were close to our forecasts, the strong start to Q1 2024 with 53% growth in January creates upside to our forecasts. GiG did not provide any updated guidance for 2024, however, given the strong start to January we have raised our topline and EBITDA estimates by 1-2% for 2024-25E. We expect growth in the near-term to be tilted towards Media supported by the strong organic growth momentum and the acquisition of KaFe Rocks which was only consolidated for a few days in Q4 2023. For Platform & Sportsbook, we expect growth to be stronger in H2 2024 as the recent organizational changes and product improvements take effect and as comps get easier. The tables below summarize group financials for 2022-26E.

GiG: Group P&L
EURm	2022	2023E	Q1 24E	Q2 24E	Q3 24E	Q4 24E	2024E	2025E	2026E
Revenue	90	127	40.6	42.4	44.3	47.6	175	207	233
Growth YoY, %	35%	41%	43%	37%	39%	34%	38%	19%	13%
Organic, %	27%	20%	20%	18%	18%	18%	18%	19%	13%
Acquired, %	8%	21%	23%	19%	22%	16%	20%	0%	0%

Cost of sales	-1	-1	-0.4	-0.4	-0.4	-0.5	-2	-2	-2
Gross profit	89	126	40.2	42.0	43.9	47.1	173	205	231

Marketing costs	-19	-27	-9.9	-9.7	-9.8	-11.1	-40	-47	-54
Other operating costs	-36	-46	-12.5	-12.8	-13.0	-13.3	-52	-56	-60
Total opex	-55	-74	-22.4	-22.4	-22.8	-24.3	-92	-103	-114

EBITDA adj.	34	53	17.8	19.6	21.1	22.8	81	102	117
EBITDA-Margin, %	38%	42%	44%	46%	48%	48%	46%	49%	50%

Non-recurring	-2	8	-0.5	-0.5	-0.5	-0.5	-2	-2	0
EBITDA	32	60	17.3	19.1	20.6	22.3	79	100	117
EBITDA-Margin, %	36%	47%	43%	45%	46%	47%	45%	48%	50%

D&A	-21	-27	-7.3	-7.3	-7.3	-7.3	-29	-29	-29
EBIT	12	33	10.0	11.8	13.3	15.0	50	71	88
EBIT-Margin, %	13%	26%	25%	28%	30%	32%	29%	34%	38%

Net finance	-4	0	-2.0	-2.0	-2.0	-2.0	-8	-4	-4
Tax	-2	-17	-1.6	-2.0	-2.3	-2.6	-8	-13	-17
Net profit	6	16	6.4	7.9	9.1	10.4	34	54	67

EPS	0.05	0.12	0.05	0.06	0.07	0.08	0.26	0.42	0.52

Source: Redeye Research

Media: Revenue and EBITDA
EURm	2022	2023	Q1 24E	Q2 24E	Q3 24E	Q4 24E	2024E	2025E	2026E
Revenue	62	89	31.1	32.6	33.6	36.6	134	157	177
Growth, %	37%	44%	69%	50%	49%	38%	50%	18%	13%

EBITDA	30	41	14.9	15.7	16.5	18.0	65	79	89
EBITDA-margin	48%	46%	48%	48%	49%	49%	49%	50%	50%

Source: Redeye Research

Platform & Sportsbook: Revenue and EBITDA
EURm	2022	2023	Q1 24E	Q2 24E	Q3 24E	Q4 24E	2024E	2025E	2026E
Revenue	28	38	9.5	9.8	10.7	10.9	41	50	56
Growth, %	33%	33%	-5%	5%	15%	20%	8%	23%	13%

EBITDA	5	12	2.9	3.9	4.6	4.8	16	24	28
EBITDA-margin	16%	32%	30%	40%	43%	44%	40%	48%	50%

Source: Redeye Research

DCF-valuation

On the back the slightly increased estimates, we also increased our DCF-valuation range, where the new base case stands at SEK56 (SEK55). The base case implies an EV/EBITDA of 9x 2024E while the share currently trades at 5x 2024E EV/EBITDA. Our bull case and bear case remain unchanged at SEK85 and SEK24, respectively. The table below summarizes key assumptions for the valuation scenarios.

GiG: Fair Value Range
SEK	Bear Case	Base Case	Bull Case

Value per share	24	56	85

Revenue CAGR 2025-2029	4%	9%	14%
Revenue CAGR 2030-2039	2%	4%	6%
Growth Terminal	2%	2%	2%

EBITDA-margin 2025-2039	39%	48%	51%
EBITDA Terminal	38%	45%	48%

Source: Redeye Research

SOP-valuation

We also updated our SOP-valuation where we see a valuation range from SEK37-73 per share with an average of SEK55 per share. Owing to a strong growth outlook and strong profitability, we argue that the Platform & Sportsbook could see valuation multiples of 9x-14x EBITDA which is in the mid to high range of listed peers. This implies an enterprise value of SEK12-SEK19 with an average of SEK16 for the Platform & Sportsbook segment. For the Media segment, we see valuation multiples of 5-10x as fair, which is also in the mid to high range compared to peers, also reflecting the segment's strong growth and profitability. Based on this, the implied enterprise value for the Media segment is SEK28-55 per share with an average of SEK42. The tables below summarize the SOP-valuation and the valuation of listed peers.

SOTP valuation, EURm
Segment	Sales	EBITDA	EV/EBITDA	EV/EBITDA	Value	Value	Value
	2024E	2024E	Low-end	High-end	Low-end	High-end	Average

Platform & Sportsbook	41	16	9x	14x	145	226	186
Per share, SEK					12	19	16

Media	134	65	5x	10x	325	650	488
Per share, SEK					28	55	42

Total value	175	81	6x	11x	470	876	673
Net debt 2024E					60	60	60
SOTP					410	816	613
Per share, SEK					37	73	55
Source: Redeye Research

Peer valuation
	EV /	EBITDA	Sales CAGR	EBITDA-margin
Company	2024E	2025E	23-25E	2024E

Suppliers
Evolution AB	16	14	17%	70%
Light & Wonder	9	8	8%	39%
IGT	6	5	3%	42%
Playtech	4	4	5%	26%
Kambi Group	5	4	9%	34%
GAN Limited	9	4	19%	5%
Genius Sports Limited	20	14	16%	16%
Sportradar Group	13	11	17%	19%
Aristocrat Leisure	12	11	5%	33%
Fantasma Games	7	5	26%	35%
Median	9	7	12%	33%
Average	10	8	12%	32%

Affiliates
Catena Media	2	1	19%	36%
Better Collective	12	10	21%	35%
Raketech	2	2	15%	29%
Gambling.com	7	6	16%	36%
Median	5	4	18%	35%
Average	6	5	18%	34%

Source: Factset, 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 SEK56 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 9% over 2025-29 and 4% over 2030-39 with a terminal growth of 2% by 2039E. We estimate an expanding EBITDA-margin reaching 50% by 2029E whereafter we assume a gradual decline towards a terminal EBITDA-margin of 45% by 2039E.

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	2022	2023	2024e	2025e	2026e
Revenues	90.1	126.8	174.8	207.5	233.4
Cost of Revenue	0.91	1.1	1.7	2.1	2.3
Operating Expenses	56.9	65.6	93.9	104.9	114.4
EBITDA	32.3	60.1	79.2	100.5	116.7
Depreciation	0.00	0.00	0.00	0.00	0.00
Amortizations	20.6	26.7	29.0	29.0	29.0
EBIT	11.7	33.4	50.2	71.5	87.7
Shares in Associates	0.00	0.00	0.00	0.00	0.00
Interest Expenses	7.9	1.7	8.0	4.0	4.0
Net Financial Items	-4.0	-0.35	-8.0	-4.0	-4.0
EBT	7.7	33.0	42.2	67.5	83.7
Income Tax Expenses	2.1	17.1	8.4	13.5	16.7
Net Income	5.6	16.0	33.7	54.0	67.0
Balance sheet
Assets
Non-current assets
EURm	2022	2023	2024e	2025e	2026e
Property, Plant and Equipment (Net)	0.00	0.00	0.00	0.00	0.00
Goodwill	75.3	26.1	46.1	71.1	71.1
Intangible Assets	61.0	78.1	73.6	73.6	77.3
Right-of-Use Assets	0.00	0.00	0.00	0.00	0.00
Other Non-Current Assets	10.2	134.9	134.9	134.9	134.9
Total Non-Current Assets	146.6	239.1	254.6	279.6	283.3
Current assets
EURm	2022	2023	2024e	2025e	2026e
Inventories	0.00	0.00	0.00	0.00	0.00
Accounts Receivable	23.2	25.5	35.0	41.5	46.7
Other Current Assets	0.00	0.00	0.00	0.00	0.00
Cash Equivalents	15.2	15.5	16.2	43.5	105.5
Total Current Assets	38.4	41.0	51.1	85.0	152.2
Total Assets	185.0	280.1	305.7	364.6	435.5
Equity and Liabilities
Equity
EURm	2022	2023	2024e	2025e	2026e
Non Controlling Interest	0.00	0.00	0.00	0.00	0.00
Shareholder's Equity	65.0	95.4	129.1	183.1	250.1
Non-current liabilities
EURm	2022	2023	2024e	2025e	2026e
Long Term Debt	60.9	74.6	74.6	74.6	74.6
Long Term Lease Liabilities	0.00	0.00	0.00	0.00	0.00
Other Long Term Liabilities	20.7	71.8	71.8	71.8	71.8
Total Non-Current Liabilities	81.6	146.4	146.4	146.4	146.4
Current liabilities
EURm	2022	2023	2024e	2025e	2026e
Short Term Debt	3.8	1.7	1.7	1.7	1.7
Short Term Lease Liabilities	3.2	2.3	2.3	2.3	2.3
Accounts Payable	22.6	17.0	26.2	31.1	35.0
Other Current Liabilities	8.9	17.3	0.00	0.00	0.00
Total Current Liabilities	38.4	38.4	30.3	35.1	39.0
Total Liabilities and Equity	185.0	280.1	305.7	364.6	435.5
Cash flow
EURm	2022	2023	2024e	2025e	2026e
Operating Cash Flow	31.8	41.1	45.2	81.4	94.7
Investing Cash Flow	-48.1	-55.4	-44.5	-54.0	-32.7
Financing Cash Flow	23.0	22.3	0.00	0.00	0.00

Rating definitions

The team

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