European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 24 March, <a href="https://www.smartkarma.com/entities/bally-s-corp" target="_blank" data-smartkarma-citation="entities:32231:1" rel="noopener">Bally's Corporation (BALY US)</a> reached an <a href="https://www.gamesysgroup.com/media/1786/rule-24-announcement-dated-24-march-2021.pdf" target="_blank" rel="noopener">agreement in principle</a> to acquire <a href="https://www.smartkarma.com/entities/gamesys-group-plc" target="_blank" data-smartkarma-citation="entities:23997:1" rel="noopener">Gamesys Group (GYS LN)</a> for c. £2 bn implemented by a scheme of arrangement.
<ul>
<li>Put up or shut up deadline is 21 April.</li>
</ul>
Consideration is 1850p per share, in cash, for an implied equity value of £2,022 mn and an implied EV of £2,342 mn.
<ul>
<li>
This represents 2.9x EV/ 21e revenue, 10.4x EV/21e EBITDA and 11.8x P/21e E.
</li>
</ul>
There is also a share alternative (new shares) in lieu of part or all of the cash consideration: 0.343 BALY US x 1 GYS LN. Gamesys' main shareholders intend to take it. So Bally's will only fork out c. £1,527 mn, financed first via bridge facility then equity raise (Bally's is firmly in junk territory, rated B stable by S&amp;P).
Bally’s is interested in Gamesys to grow in online gambling and sports betting. Bally's has recently been on an acquisition run. This friendly deal would be a transformational acquisition for Bally's and both companies are eyeing US online gambling and sports betting (look at Caesars' share price run since it announced the acquisition of William Hill). Putting together Bally's brand and bricks and mortar assets together with the online Gamesys platform seems a good combination. When news of the deal broke, Bally's shares gained 14% in midday trading.
Bally's prospective offer is less than the 16.3x EV/Fwd EBITDA in the case of Caesar's bid for William Hill and 14.0x EV/Fwd EBITDA in Entain's raised offer for Enlabs.
On this basis, the offer from Bally's does not look particularly generous, and Gamesys closed on 25 March 5.4% above the prospective offer. Recommendation is long Gamesys, TP 2060p (median implied valuation on an EV/Fwd EBITDA across comparable companies).

On 24 March, Bally's Corporation (BALY US) reached an agreement in principle to acquire Gamesys Group (GYS LN) for c. £2 bn implemented by a scheme of arrangement.

Put up or shut up deadline is 21 April.

Consideration is 1850p per share, in cash, for an implied equity value of £2,022 mn and an implied EV of £2,342 mn.


This represents 2.9x EV/ 21e revenue, 10.4x EV/21e EBITDA and 11.8x P/21e E.


There is also a share alternative (new shares) in lieu of part or all of the cash consideration: 0.343 BALY US x 1 GYS LN. Gamesys' main shareholders intend to take it. So Bally's will only fork out c. £1,527 mn, financed first via bridge facility then equity raise (Bally's is firmly in junk territory, rated B stable by S&amp;P).
Bally’s is interested in Gamesys to grow in online gambling and sports betting. Bally's has recently been on an acquisition run. This friendly deal would be a transformational acquisition for Bally's and both companies are eyeing US online gambling and sports betting (look at Caesars' share price run since it announced the acquisition of William Hill). Putting together Bally's brand and bricks and mortar assets together with the online Gamesys platform seems a good combination. When news of the deal broke, Bally's shares gained 14% in midday trading.
Bally's prospective offer is less than the 16.3x EV/Fwd EBITDA in the case of Caesar's bid for William Hill and 14.0x EV/Fwd EBITDA in Entain's raised offer for Enlabs.
On this basis, the offer from Bally's does not look particularly generous, and Gamesys closed on 25 March 5.4% above the prospective offer. Recommendation is long Gamesys, TP 2060p (median implied valuation on an EV/Fwd EBITDA across comparable companies).

Bally's - Gamesys: Betting on US Online Gambling

Leading International Investment Research, Edison Investment Research

Edison Investment Research

Leading International Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

Equity Bottom-Up

Gamesys Group’s Q320 trading update is ahead of expectations with pro forma revenue growth of 31% and an improved financial position. As in previous quarters, the company increased the active player base responsibly and benefitted from new game launches. We increase our revenue forecasts for FY20–22 by 5.7–7.0%, and EBITDA forecasts by a slightly lower 2–3% as management further invests in growing a sustainable and repeatable business, while ensuring revenue growth is done responsibly. This follows an EBITDA upgrade of 7.8% for FY20 at the time of the interim results. For FY21e, the free cash flow yield is 9.2% and the dividend yield is 2.9%.

Gamesys Group’s Q320 trading update is ahead of expectations with pro forma revenue growth of 31% and an improved financial position. As in previous quarters, the company increased the active player base responsibly and benefitted from new game launches. We increase our revenue forecasts for FY20–22 by 5.7–7.0%, and EBITDA forecasts by a slightly lower 2–3% as management further invests in growing a sustainable and repeatable business, while ensuring revenue growth is done responsibly. This follows an EBITDA upgrade of 7.8% for FY20 at the time of the interim results. For FY21e, the free cash flow yield is 9.2% and the dividend yield is 2.9%.

Gamesys Group - Strong trading continued in Q320

Gamesys Group’s interim results reporting pro forma adjusted EBITDA growth of 17% exceeded consensus expectations, demonstrating the strength of its strategy of growing the player base responsibly, while aiming for a high player retention rate. The improving financial position has resulted in the introduction of a new dividend (company commentary implies 36p/share for FY20) earlier than anticipated by us and consensus. We have increased our FY20 EBITDA forecast by 7.8%.

Gamesys Group’s interim results reporting pro forma adjusted EBITDA growth of 17% exceeded consensus expectations, demonstrating the strength of its strategy of growing the player base responsibly, while aiming for a high player retention rate. The improving financial position has resulted in the introduction of a new dividend (company commentary implies 36p/share for FY20) earlier than anticipated by us and consensus. We have increased our FY20 EBITDA forecast by 7.8%.

Gamesys Group - Strong performance delivers unexpected return

In a continuation of previous trends, Gamesys has reported a 19% increase in Q120 pro-forma revenues to £155.3m. The business has no retail or sport exposure and the first few weeks of Q220 have been strong. Geographically, Asian markets are driving growth and the UK has been solid. During the COVID-19 lockdown period, Gamesys is proactively instigating responsible gaming measures, which include ceasing all TV advertising, and the company is donating £200,000 to Women’s Aid. The stock trades at 6.2x P/E and 6.7x EV/EBITDA with an estimated 13.1% free cash flow yield for FY21.

In a continuation of previous trends, Gamesys has reported a 19% increase in Q120 pro-forma revenues to £155.3m. The business has no retail or sport exposure and the first few weeks of Q220 have been strong. Geographically, Asian markets are driving growth and the UK has been solid. During the COVID-19 lockdown period, Gamesys is proactively instigating responsible gaming measures, which include ceasing all TV advertising, and the company is donating £200,000 to Women’s Aid. The stock trades at 6.2x P/E and 6.7x EV/EBITDA with an estimated 13.1% free cash flow yield for FY21. 

Gamesys Group - Growth through responsible gaming

Gamesys Group’s FY19 pro forma results were slightly higher than previous consensus, with revenues increasing by 15% to £565.3m. Asian revenues increased by 137% and now comprise 22% of the total – predominantly from Japan. We are encouraged by the 5% growth in the UK, after a challenging year for the sector. Pro forma EBITDA of £158.9m was 4% lower than the previous year, largely due to higher UK gaming taxes. Following the acquisition of Gamesys, the net debt/EBITDA ratio was 2.8x, which we estimate will fall to 2.0x in FY20 and 1.4x in FY21. The stock trades at 4.1x P/E and 5.2x EV/EBITDA with an estimated 19.8% free cash flow yield for FY21. We note that Gamesys is not exposed to sports and therefore the business should be relatively unaffected by the coronavirus outbreak.

Gamesys Group’s FY19 pro forma results were slightly higher than previous consensus, with revenues increasing by 15% to £565.3m. Asian revenues increased by 137% and now comprise 22% of the total – predominantly from Japan. We are encouraged by the 5% growth in the UK, after a challenging year for the sector. Pro forma EBITDA of £158.9m was 4% lower than the previous year, largely due to higher UK gaming taxes. Following the acquisition of Gamesys, the net debt/EBITDA ratio was 2.8x, which we estimate will fall to 2.0x in FY20 and 1.4x in FY21. The stock trades at 4.1x P/E and 5.2x EV/EBITDA with an estimated 19.8% free cash flow yield for FY21. We note that Gamesys is not exposed to sports and therefore the business should be relatively unaffected by the coronavirus outbreak. 

Gamesys Group - Business as usual despite coronavirus

United Kingdom

Gamesys Group PLC provides gambling services. The Company offers online slot casino, and puzzle games. Gamesys Group serves customers worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00