Raketech: Solid outlook for 2024 with continued growth from Sub-Affiliation

Research Update

2024-02-22

07:04

Redeye updates on Raketech following the company’s Q4-results which were largely in line with our expectations. The company also saw a solid start to 2024 and with an EBITDA guidance range in line with our forecasts we have made limited changes to our estimates and leave valuation range unchanged.

Hjalmar Ahlberg

Anton Hoof

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Solid Q4-results

Raketech’s Q4-results were overall in line with our expectations albeit with stronger revenue than expected from Sub-affiliation while Affiliation saw slightly lower revenue than expected. Opex was largely as expected and the EBITDA of SEK6.0m was just above our estimate of SEK5.9m.

Sub-affiliation continues to drive growth

Raketech achieved strong growth of 45% in 2023, driven by Sub-Affiliation and looking into 2024, we expect this segment to remain the key growth driver as the positive momentum continues. Affiliation is likely to continue seeing lower growth in the short-term with potential to improve in H2 2024 and we expect more balanced growth between the segments in 2025-26E.

Limited estimate changes

We make limited changes to our estimates on the back of the Q4-report. The start to Q1 was solid and the EBITDA guidance range for 2024 was in line with our estimates. Our valuation range remains unchanged with a base case of SEK40, which implies c8x EV/EBITDA 2024E while the share currently trades at c3x EV/EBITDA 2024E (including earnouts).

Key financials

EURm	2022	2023	2024e	2025e	2026e
Revenues	52.6	77.7	91.8	101.3	112.1
Revenue Growth	26.6%	47.6%	18.2%	10.4%	10.6%
EBITDA	20.0	23.2	25.1	29.6	32.6
EBITDA Margin	38.0%	29.9%	27.3%	29.2%	29.1%
EBIT	12.4	11.3	11.5	15.2	18.2
EBIT Margin	23.5%	14.5%	12.5%	15.0%	16.2%
Net Income	8.3	6.6	10.3	13.7	16.4
EV/EBITDA(inc.earnout)	4.1	4.5	3.4	2.1	1.4

Solid Q4-results

Raketech reported revenue of EUR22.8m and EBITDA of EUR6.0m for Q4 2023 which was largely in line with our forecasts of EUR21.9m and EUR5.9m respectively. Looking at the revenue per segment, Affiliation was slightly lower than expected while Sub-affiliation and Betting Tips were above estimates. On a regional basis, revenue from Nordics was close to our expectations and Europe was slightly lower while Rest of World and US were stronger than expected. Opex was largely in line, with slightly higher direct costs, driven by the larger-than-expected mix of Sub-affiliation revenue. The company proposed a dividend of EUR0.10 per share which was above our estimate of EUR0.08. Coming to the outlook for 2024, the company saw a solid start to the year with revenue of EUR7.3m in January while the company’s guidance for an EBITDA of EUR24-26m was in line with our forecast. The table below summarize the Q4-results outcome compared to our forecasts.

Raketech: results outcome
EURm	Q4 22	Q1 23	Q2 23	Q3 23	Q4 23E	Q4 23A	Diff, %
Revenue	15.7	15.8	17.6	21.5	21.9	22.8	4.0%
ow Affiliation	10.3	10.8	10.3	9.5	10.3	9.7	-7%
ow Sub-affiliation	3.5	3.6	6.3	11.1	10.3	11.4	11%
ow Betting Tips	1.9	1.4	1.0	0.9	1.3	1.7	30%

Direct costs	-4.7	-4.3	-6.6	-10.5	-10.4	-11.3	8%
Employee costs	-2.3	-2.3	-2.6	-2.5	-2.6	-2.6	-1%
Other costs	-2.4	-3.1	-2.9	-2.9	-3.0	-2.9	-2%

EBITDA	6.3	6.1	5.5	5.6	5.9	6.0	2.0%
EBITDA (%)	40%	39%	31%	26%	27%	26%

EBIT	4.3	3.8	2.5	2.2	2.4	2.8	16%
EBIT (%)	27%	24%	14%	10%	11%	12%

Net income	2.7	2.8	1.8	0.8	1.7	1.2	-31%

EPS, EUR	0.06	0.07	0.04	0.02	0.04	0.03	-25%
Source: Redeye Research

Sub-affiliation continues to drive growth

Raketech has seen a shift in its business during 2023 owing to strong growth in its Sub-Affiliation segment which has increased from a mix of around 21% of total revenue in 2022 to around 42% in 2023. While the shift has meant that EBITDA-margin has come down, it has still realized strong EBITDA growth which increased by 18% in 2023. Looking into 2024E we expect continued growth for the Sub-Affiliation segment where we forecast it will represent around 51% of total revenue. Still, the segment will meet tougher comps in H2 2024 and looking into 2025-26E we expect more balanced growth between Sub-Affiliation and Affiliation. Increased growth in Affiliation should be supported by the recently initiated strategic review of core assets in Sweden as well as upside potential from the addition to affiliate revenue on US assets.

Raketech: Revenue per segment, EBITDA and EBITDA-margin

Limited estimate changes

With Q4-results coming in largely as expected and with an EBITDA-guidance in line with our forecasts we have made limited changes to our estimates. The only minor adjustment is slightly increased direct costs for 2024E owing to an increased mix of Sub-Affiliation revenue. The cash flow guidance of EUR22m-24m coupled with a strong balance sheet (net cash of EUR3.6m by the end of 2023) puts the company well-positioned to handle the EUR18m earnout-payment for Casumba that is scheduled for 2024. The proposed dividend payment of EUR0.10 per share is a further testament to the company’s expectations of continued strong cash generation. The tables below summarize key financials and revenue per segment and region for 2022-26E.

Raketech: Group key financials
EURm	2022	2023	Q1 24E	Q2 24E	Q3 24E	Q4 24E	2024E	2025E	2026E
Revenue	53	78	21.3	22.3	23.2	25.0	92	101	112
Growth Y/Y (%)	27%	48%	35%	26%	8%	10%	18%	10%	11%

Direct costs	-15	-33	-10.2	-10.7	-10.7	-11.5	-43	-46	-50
Employee costs	-9	-10	-2.7	-2.8	-2.8	-2.9	-11	-13	-15
Other costs	-9	-12	-3.0	-3.0	-3.2	-3.2	-12	-13	-15

EBITDA	20	23	5.4	5.8	6.5	7.4	25	30	33
EBITDA (%)	38%	30%	25%	26%	28%	30%	27%	29%	29%

D&A	-8	-12	-3.4	-3.4	-3.4	-3.4	-14	-14	-14

EBIT	12	11	2.0	2.4	3.1	4.0	11	15	18
EBIT (%)	23%	14%	9%	11%	13%	16%	12%	15%	16%

Net income	8	7	1.8	2.2	2.8	3.6	10	14	16

EPS, EUR	0.20	0.15	0.04	0.05	0.06	0.08	0.24	0.32	0.38

Source: Redeye Research

Raketech: Revenue per segment and region
EURm	2022	2023	Q1 24E	Q2 24E	Q3 24E	Q4 24E	2024E	2025E	2026E
Revenue and per segment	53	78	21.3	22.3	23.2	25.0	92	101	112
Affiliation	35	40	9.7	9.6	9.9	10.1	39	42	45
Sub-affiliation	11	32	10.1	11.6	12.2	13.1	47	53	61
Betting Tips	6	5	1.6	1.1	1.0	1.9	6	6	6

Affiliation YoY, %	22%	14%	-10%	-8%	5%	5%	-2%	7%	7%
Sub-affiliation YoY, %	27%	191%	180%	85%	10%	14%	45%	14%	14%
Betting Tips YoY %	705%	-20%	10%	10%	10%	10%	10%	5%	5%

Revenue and per region	53	78	21.3	22.3	23.2	25.0	92	101	112
Nordics	23	34	9.5	10.1	10.0	10.6	40	42	44
Rest of Europe	3	3	0.9	1.1	1.2	0.9	4	4	5
US	8	6	1.9	1.4	1.3	2.4	7	8	9
Rest of World	19	35	9.1	9.6	10.6	11.2	41	47	54

Nordics YoY, %	2%	43%	65%	40%	0%	0%	20%	5%	5%
Rest of Europe YoY, %	-18%	23%	50%	50%	10%	10%	26%	10%	10%
US YoY, %	136%	-18%	0%	10%	15%	15%	10%	15%	15%
Rest of World YoY, %	55%	83%	20%	15%	15%	20%	17%	15%	15%

Source: Redeye Research

Valuation

With limited estimate changes, we leave our valuation range unchanged with a base case of SEK40, a bull case of SEK80 and a bear case of SEK14. Our base case implies c8x EV/EBITDA 2024E while the share currently trades at c3x EV/EBITDA 2024E (including earnouts). The table below summarizes key assumptions for the valuation scenarios.

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

Value per share	14	40	80

Revenue CAGR 2025-2029	2%	8%	13%
Revenue CAGR 2030-2039	2%	3%	5%
Growth Terminal	2%	2%	2%

EBITDA-margin 2025-2039	20%	28%	34%
EBITDA Terminal	20%	25%	33%

Source: Redeye Research

Investment thesis

Case

Fast-growing tech-focused affiliate performance marketing group with a growing global footprint

We expect Raketech to continue its global expansion in the coming years, driven by growth in Asia, US and South America. We forecast a topline CAGR of 24% over 2022-25E. The growth in Asia is driven by the company’s strong position in Japan which is a market with low online gambling penetration. The company has an untapped growth opportunity in the US where revenue mainly derives from betting subscriptions while it just recently started to monetize on lead generation. In South America, where the company has an emerging position, several markets are regulating online sports betting and casino and with low penetration the upside is significant. Finally, Raketech’s AffiliationCloud business, which is in its early days, provides upside optionality to our long-term growth forecasts.

Evidence

Solid track-record and strong flagship assets

Since its listing in 2018, Raketech has successfully broadened its portfolio from mainly Nordic exposure to a global footprint while also expanding its product mix. The company has grown substantially with revenue increasing from EUR26m in 2018 to EUR76m in 2023E. While growth has varied on an annual basis, the company has overachieved its target of 10% organic growth and 20% acquired growth. This provides credibility for future growth ambitions. Raketech has further been able to sustain strong performance from flagship assets, which further provides additional support to our forecasts.

Challenge

Competitive market and AffiliationCloud in the early phase

While the online gambling affiliation market has seen significant consolidation in recent years, there is still strong competition, especially in growth markets such as US and South America. Tough competition could result in slower growth than expected while it could also mean weaker profitability if more investments are needed to support traffic generation. While we have a conservative forecast for the AffiliationCloud, a negative scenario could result in misallocated capital which would impact the group’s overall growth and profitability.

Valuation

DCF-valuation supported by stable growth and solid cash generation

Our DCF-valuation indicates a base case of SEK40, while the bull case is SEK80 and the bear case SEK14. Our valuation includes full payment of the Casumba Media earnout of which EUR33m is in cash and EUR13m in equity (fully diluted shares of 51.3m). Our base case implies an EV/EBITDA multiple of 8x 2024E while the share currently trades at 4x EV/EBITDA including earnouts. The base case assumes growth of around 8% during 2024-28E with an EBITDA-margin of 28% while the terminal EBITDA-margin is set at 25%.

Quality Rating

People: 3

Raketech has a solid track record of meeting its financial targets. The management team and board are well-composed and have relevant experience in online gambling, business and finance. While the CEO was changed in early 2024, the acting CEO, Johan Svensson, is one of the co-founders and well-suited for the job in our view. The company has a sound capital allocation strategy which prioritizes growth while excess cash is distributed to shareholders.

Business: 3

Raketech has an attractive business model yielding a large share of recurring revenue from a wide customer group, although with a high concentration from Japan. The company has embedded growth optionality from new markets such as US and South America and the emerging AffiliationCloud business. While competition is strong in the online gambling performance marketing industry, the company has strong market positions in its core markets.

Financials: 3

Raketech has strong profitability and strong cash generation with limited capex requirements. However, net cash flow is negatively impacted by earnout payments from an earlier acquisition. Amortization of intangible assets relating to acquisitions also impacts return on assets and equity negatively. These metrics have potential to improve in the coming years, which should yield a higher rating for Financials.

Financials

Income statement
EURm	2022	2023	2024e	2025e	2026e
Revenues	52.6	77.7	91.8	101.3	112.1
Cost of Revenue	15.3	32.8	43.1	45.6	50.4
Operating Expenses	17.4	21.7	23.6	26.1	29.1
EBITDA	20.0	23.2	25.1	29.6	32.6
Depreciation	0.00	0.00	0.00	0.00	0.00
Amortizations	7.7	11.9	13.6	14.4	14.4
EBIT	12.4	11.3	11.5	15.2	18.2
Shares in Associates	0.00	0.00	0.00	0.00	0.00
Interest Expenses	1.2	1.4	0.00	0.00	0.00
Net Financial Items	-2.3	-3.8	0.00	0.00	0.00
EBT	10.0	7.5	11.5	15.2	18.2
Income Tax Expenses	1.7	0.87	1.1	1.5	1.8
Net Income	8.3	6.6	10.3	13.7	16.4
Balance sheet
Assets
Non-current assets
EURm	2022	2023	2024e	2025e	2026e
Property, Plant and Equipment (Net)	0.14	0.10	0.28	0.49	0.71
Goodwill	1.5	1.2	1.2	1.2	1.2
Intangible Assets	119.4	139.3	127.5	115.2	103.0
Right-of-Use Assets	0.30	0.10	0.10	0.10	0.10
Other Non-Current Assets	0.00	0.00	0.00	0.00	0.00
Total Non-Current Assets	121.3	140.7	129.1	117.0	105.0
Current assets
EURm	2022	2023	2024e	2025e	2026e
Inventories	0.00	0.00	0.00	0.00	0.00
Accounts Receivable	6.2	11.8	13.8	15.2	16.8
Other Current Assets	0.00	0.00	0.00	0.00	0.00
Cash Equivalents	3.3	13.5	17.8	33.3	43.5
Total Current Assets	9.5	25.3	31.5	48.5	60.3
Total Assets	130.8	166.0	160.7	165.4	165.3
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	89.9	99.3	107.4	119.9	137.4
Non-current liabilities
EURm	2022	2023	2024e	2025e	2026e
Long Term Debt	14.9	0.00	0.00	0.00	0.00
Long Term Lease Liabilities	0.16	0.00	0.00	0.00	0.00
Other Long Term Liabilities	8.8	31.5	23.5	14.5	3.5
Total Non-Current Liabilities	23.8	31.5	23.5	14.5	3.5
Current liabilities
EURm	2022	2023	2024e	2025e	2026e
Short Term Debt	0.00	9.8	9.8	9.8	9.8
Short Term Lease Liabilities	0.14	0.11	0.11	0.11	0.11
Accounts Payable	4.0	6.6	9.2	10.1	11.2
Other Current Liabilities	12.9	18.7	10.7	11.0	3.4
Total Current Liabilities	17.1	35.3	29.9	31.1	24.5
Total Liabilities and Equity	130.8	166.0	160.7	165.4	165.3
Cash flow
EURm	2022	2023	2024e	2025e	2026e
Operating Cash Flow	18.8	21.0	26.9	27.9	30.5
Investing Cash Flow	-13.2	-5.7	-20.3	-11.2	-21.5
Financing Cash Flow	0.00	-4.0	-2.3	-1.2	1.2

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