Gfinity PLC

Gfinity PLC (LON: GFIN) is an AIM-listed leading global esports business group. The group utilizes its expertise to outline, create and deliver exceptional experiences and to offer consultancy services and winning approach for sports right holders, media companies, game publishers, and commercial partners.

Recent News
On 5th December 2019, the company announced that it had been involved to host the NBA 2K European Invitational league.

Financial Highlights (for the year ended 30 June 2019, £ million)

(Source: Final Results, Company Fillings, LSE)

During the financial year 2019, the group’s reported revenue surged by 82.3 per cent to £7.9 millionagainst the prior year data, reflecting both the strength of the strategic account relationships with a blue-chip customer base and the value of the investments in products, technology, and people in recent years. This continues to look to the group for their esports solutions and also represented a surge of over 80 per cent year-on-year for a second consecutive year. Gross profit for the financial year 2019 rose by £4.4 million to 1 million pounds as compared with the loss of £3.4 million in the financial year 2018, driven by the strategic emphasis on delivery of higher-margin esports solutions for key partners.

Adjusted operating loss declined by £3.6 million to £8.6 million in FY19 as compared with the financial year 2018 of a loss of £12.2 million. On 30^th June 2019, the net cash was 0.6 million pounds, augmented by completion of 5.25 million pounds of capital raise in July 2019.

Share Price Performance

Daily Chart as at December-27-19, before the market closed (Source: Thomson Reuters)

On 27th December 2019, Gfinity PLC shares were trading at GBX 3.30 at the time of writing before the market close (at 8:15 AM GMT), with no change against the previous day closing price. Stock's 52 weeks High and Low are GBX 7.20/GBX 3.20. The company’s stock beta stood at 1.63, reflecting the higher movement of the stock as compared to the benchmark index.

Conclusion
Some risk that could impact the company's financial performance includes financial risk, interest rate risk, currency risk, credit risk and liquidity risk. Gfinity has a scalable business model backed by the company’s value creation. The group is aiming to be at break-even within 2021 and estimating a gross margin of 30-40% and EBITDA margin of 15-25% by the end of 2021. The group recorded stellar top-line growth and secured several good contracts, during the FY19.

The company has refocused the business on a "Strategic Client Management model" that has enabled them to build a robust pipeline of new commercial prospects and bolster the current strategic partnerships. The esports market is increasing quickly and the company is on the epicentre of the ecosystem.

The company is focussed on working closely with the partners to deliver distinctive esports solutions and to assist them in connecting with young gamers around the globe. The new CEO, Graham Wallace, has vast experience in several related industries and has all the qualities as required to accelerate and lead the performance of the group. The three-year strategic plan is set, and the company has a robust financial position.

Therefore, based on the above rationale, we have given a "Speculative Buy" recommendation on the stock, at the current price of GBX 3.30 (as on December 27, 2019, before the market close).

LoopUp Group PLC

LoopUp Group Plc (LON: LOOP) is a Software & Computer Services group, which provides high-quality remote meetings solution. The company is focussed on providing enterprise professionals with better and productive user experience with quality, reliability and security.

Recent News
On 6th December 2019, the company has changed its registered office. From 8th December 2019, its registered office is in The Tea Building, 56 Shoreditch High Street, London E1 6JJ.

On 4th December 2019, the company announced that its remuneration committee and Board had approved a proposal to be made to existing employees concerning options granted in August 2018 & June 2019.

Financial Highlights (for the six months ended 30 June 2019, £ million)

(Source: Interim Reports, Company Fillings, LSE)

The company’s reported revenue for the first half of 2019 increased by 86 per cent to GBP 22.35 millionagainst the same period last year. Gross profit surged 67 per cent to GBP 15 million in H1 FY19 as compared to £8.9 million in the first half of 2018. Adjusted EBITDA for the first half of 2019 increased by 32 per cent to GBP 3.5 million as compared to GBP 2.7 million in H1 FY18. Adjusted operating profit was GBP 1.2 million, an increase of 29 per cent as compared with the first half of 2019 of GBP 0.9 million. Adjusted diluted earnings per share for the first half of 2019 stood at 1.1 pence as compared to 1.7 pence in the first half of 2018.

Share Price Performance

Daily Chart as at December-27-19, before the market closed (Source: Thomson Reuters)

On 27th December 2019, LoopUp Group PLC shares were trading at GBX 71.50 at the time of writing before the market close (at 8:15 AM GMT), with no change against the previous day closing price. Stock's 52 weeks High and Low are GBX 395.50/GBX 46. The company’s stock beta stood at 0.79, reflecting the lower movement of the stock as compared to the benchmark index.

Valuation Methodology

*Peers: Tracsis Plc, dotDigital Group Plc, Oxford Metrics Plc, and Zoo Digital Group Plc

Conclusion
The unpredictable nature of the macro and political environment makes it hard to project the near-term progress of average usage, which is much linked to the overall economic activity of the clients. In the financial year 2019, the company’s revenue growth will be around 26 per cent and EBITDA margins will be around 15 per cent.

The company witnessed strong product demand. The company’s projects in the pipeline are healthy and provide confidence to the company to deliver robust growth in future. In a dynamic market, the company has a highly differentiated value proposition. The company has a reliable client base that is highly involved with the product, and that is increasing despite challenging macro and political headwinds.

The group will continue to invest in an effective distribution engine to boost speed. The company’s software provides users with a superior meeting experience with improved engagement and security. The company remain excited and confident in the product’s ability to create future growth.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from GBP 8 million in FY14 to £34.21 million in FY18. Compounded annual growth rate (CAGR) stood at 43.80 per cent.

Based on the decent financials and growth prospects, and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 71.50 (as on 27th December 2019, at 8:15 AM GMT), with single-digit upside potential, based on 24.5x Peers Average NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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