Gaming Realms PLC (LON: GMR)

Gaming Realms PLC (LON: GMR) is an FTSE AIM All-Share listed creator of innovative games for mobile, with operations in the UK, U.S, and Canada. Moreover, the Company brings together media, entertainment, and gaming assets in a new game format with the support of unique IP and brands.

Growth Prospects

• Significant New Releases: GMR had launched several new games like Slingo Starburst and Slingo Lobstermania into the market. Moreover, the portfolio now has 48 games as of 30 June 2021.
• Large Growing Global Casino Market: The Company aimed to penetrate European markets, including Spain, Romania, and Denmark. Furthermore, the growing US Markets would present significant opportunities for the Company as it produces approximately 3% of gross revenue from the New Jersey casino market.

(Source: Company Presentation) 

• Launch of Slingo Games: The Company had launched two new Slingo games i.e., Slingo Big Wheel and Redhot Slingo, in the highly regulated Italian market with Goldbet and Sisal.
• Strong Current Trading: The transition to new working arrangements involving home and office working would witness increasing demand for the Company’s products such as ControliQ and WorkiQ.
  

Key Risks

• Rise in Bond Yields: The recent surge in UK bond yields after the Bank of England governor gave another warning about inflationary pressures might keep investors away from Equities.
• Reduced Demand for Products: The Company has several clients who may seek products at a lower price, which could hamper the growth trajectory.
• Lack of Relevant Technological Advancement: The Company’s top-line business and bottom-line business would be adversely impacted in case GMR lacked innovation in developing new products.
  

Now we will analyze some key fundamental and shareholders statistics of Gaming Realms PLC. 

Buckley (Michael) is the most significant shareholder as it holds nearly 26.50 million shares as of 30 September 2021 

Financial and Operational Highlights (for six months ended 30 June 2021 as of 13 September 2021)

(Source: LSE Website)

• Robust Growth in Licensing Revenue: The rise in distribution from an expanded games portfolio caused Licensing revenue to increase by around 73% and reach £5.8 million during H1 FY21, while it was around £3.4 million for H1 FY20. Meanwhile, the total revenue grew by around 50% during the period.
• Favourable Turnaround in Profitability: The Company had reported a profit before tax of around £0.8 million during H1 FY21 while it had reported a pre-tax loss of negative £0.7 million for H1 FY20.
• Strong Cash Conversion: The robust cash conversion of operating profit had prompted GMR to witness an increase in the cash balance from £0.85 million for H1 FY20 to £3.92 million during H1 FY21.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 19 October 2021, at 08:11 AM GMT+1, GMR’s shares traded at GBX 30.10, down by around 2.44% against the previous day closing price. GMR’s 52-week High and Low were GBX 47.00 and GBX 17.50, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price.

GMR’s stock has delivered a decent positive return of ~32.35% in the last one year. Also, it has outperformed the FTSE All-share Leisure Goods Index with a return of about 8.26% and the FTSE AIM All-Share index with a return of approximately 26.90%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had made excellent progress towards expanding its footprints and delivering high margin revenues during H1 FY21. Moreover, the Company had recently launched Slingo Originals games in Pennsylvania, which is considered as the three leading U.S. states for iGaming, and gambling. Furthermore, the Company looked forward to obtaining an iGaming supplier licence in Ontario, Canada, and the future U.S. States. In a nutshell, the Company remained confident in the strategic outlook of the business and aimed to deliver long-term returns for the shareholders.

Considering the strong cash position, robust top-line business during H1 FY21, significant development of the gaming portfolio, turnaround into profitability, and support from the valuation using the above method, we have given a “Speculative Buy” recommendation on Gaming Realms PLC at the current price of GBX 30.10 (as on 19 October 2021, at 08:11 AM GMT+1), with a lower-double digit upside potential based on 40.38x Price to NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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