Business Overview
Gamesys Group PLC (LON: GYS) is a United Kingdom-based international online gaming operator and is on-track for future growth in an evolving global sector. It is a bingo-led global operator with a robust portfolio of online gaming brands, includes Jackpotjoy, Virgin Games, and Vera&John. On 26th September 2019, JPJ Group Plc acquired the business operations of Gamesys Limited, and the enlarged group was renamed as Gamesys Group Plc. The completion of the acquisition of Gamesys for a total consideration of 490 million pounds has created a leading global operator offering players an even greater choice of major brands and games. GYS shares are listed on the premium listing segment of the Main Market of the LSE (London Stock Exchange).

Key Insights of Global Online Gambling Market

(Source: Regulators Partners, Company Website)

In international online gambling, the market has continued to deliver double-digit growth. However, the above image is showing a good trend of reversing as online gaming grows in Asia and other emerging markets. In medium-term expectations, the double-digit growth stays realistic. Although the shape of this growth is starting to change. GYS is a major operator in a highly fragmented market.

Decent Financial Performance for the Year Ended 31^st December 2019

(Source: Results, Company Website)

On a pro-forma basis, the gaming revenue growth of 15%includes strong growth from the acquired Gamesys brands and high organic growth in markets outside the UK. Average active players per month increased by 18% at pro-forma basis over the 12-month period. On a pro-forma basis, the adjusted EBITDA decreased by 4%, driven by the impact of higher UK gaming taxes. Adjusted net debt stood at £450.3 million and leverage of 2.83x reduced from 3.02x at 30 September 2019.

In the financial year 2019, the reported gaming revenue increased by 35% to £415.1 millionas compared with the previous year (FY18: £308.2 million). Led by the interest costs associated with funding the acquisition of Gamesys Limited, the adjusted net income decreased by 2% year-on-year. On 31^st December 2019, the cash balances stood at £100.3 million.

Operational Highlights for FY19
In the UK, the company has a very successful launch of Rainbow Riches Casino in December. Japan success reflects an investment in product, infrastructure and customer support and marketing. Asia B2B businesses revenues grew by triple-digit in terms of %. Golden Hero, the new internal game studio, has grown rapidly. The group has seen double-digit growth in Germany. Brazil delivered double-digit growth and launched a casino product in Canada.

Share Price Performance

Daily Chart as on 26^th March 2020, before the market closed (Source: Thomson Reuters)

On March 26, 2020, Gamesys Group PLC shares were trading at GBX 701 at the time of writing before the market close (at 8:33 AM GMT), down by 3.58% per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 842/GBX 482.50.

Growth Catalyst

(Source: Presentation, Company Website)

The above image shows a good track record of cash generation and growth, with revenue of 18% CAGR and adjusted EBITDA of 9% CAGR. From the acquisition, the company will enhance development capabilities and greater operational control; increased scale enhances player experience and profitability, and diversified brand portfolio with international expansion opportunities.

Conclusion
Following a good start to the financial year 2020, the company is trading in line with anticipations.With respect to the fast-changing situation regarding coronavirus (COVID-19) outbreak, the urgency is with respect to the health and wellbeing of the employees and ensuring the necessary structures are in place to maintain business continuity.

After a transformative year, the company can look to the future with high confidence. The company’s brands has been performing strongly for the periodwith decent revenues and adjusted EBITDA figures reported. The company’s international markets are well placed to deliver long-term growth. The international gaming market continues to evolve, and GYS believe that it is well-positioned to deliver revenue growth and value for investors in near term.

Based on the decent fundamental performance and keeping in mind the potential headwinds, we have given a “Hold” recommendation at the current price of GBX 701 (as on 26^th March 2020, before the market close at 8:00 AM GMT).

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