GAN PLC

GAN (LON: GAN) is a prominent supplier and developer of online gaming content and enterprise-level business to business gaming software systems as well as a provider of supporting operational services. The company has developed the GameSTACK™ Internet Gaming System.

Recent News
On 23^rd December 2019, the company welcomes the legalization of Internet Casino Gambling and Sports Betting in the State of Michigan.

The company had a strong PA Gambling growth for November 2019, the total Internet Gaming Win was up by 95.3 per cent to $9.7 million, compared to $4.9 million in the prior sequential month. The total Internet Sports Wagering Handle stood at around $266.7 million for the month of November, compared to $198.7 million for the month of October. For the month of November, Internet Sports Wagering Gross Revenues (after payouts) were $17.3 million. 
In November 2019, internet gaming wins increased by 82.4% to $49.1 millionas compared to $26.9 million in the previous year period. For the month of November, the total Internet Sports Wagering Handle was around $486.8 million and internet Sports Wagering Gross Revenues (after payouts) were $27.8 million.

Financial Highlights (for the period ended 30 June 2019)
For the first half of 2019, the group’s net revenue increased by £6.7 million to £11.3 millionas compared with the corresponding period of the last year, driven by an increased revenue share from both the U.S. and Italian markets. The clean EBITDA profit stood at £3 million in H1 FY19against the clean EBITDA loss of £0.3 million in H1 FY18. The profit after tax for the current period stood at £0.7 million. On 30^th June 2019, the cash and cash equivalents stood at £9.1 million, an increase from the previous period (31 December 2018: £5.5 million).

Share Price Performance

Daily Chart as at December-30-19, before the market closed (Source: Thomson Reuters)

On 30th December 2019, GAN PLC shares were trading at GBX 175 at the time of writing before the market close (at 11:15 AM GMT), up by 7.36% against the previous day closing price. Stock's 52 weeks High and Low are GBX 179.5/GBX 40.25. The company's stock beta stood at 1.28, reflecting the higher volatility as compared to the benchmark index.

 Conclusion
For the second half of 2019, both real money Internet gambling and Simulated Gaming are expected to demonstrate continued growth.

As the company operates in multiple geographies, its profits can be impactednegatively due to foreign exchange rate fluctuations. Presently, the company is trading near the 52-week high, raising doubts at its upside potential at the current price level. The company’s trailing 12 months P/CF, EV/Sales and EV/EBITDA multiples are significantly higher as compared to the trailing 12 months industry multiple. The group faces a risk of fines and investigations which can impact the future growth as it operates in an industry which is subject to the adverse regulatory headwinds, breaches of which can be potentially fatal for the group.
Based on the risks associated with the company’s operations, we have given a "WATCH" recommendation at the current price of GBX 175 (as on 30th December 2019), with support from few catalysts needs to be evaluated at a later stage.

Team17 Group PLC

AIM-listed Team17 Group PLC (LON: TM17) is engaged in the development of video games. The group’s game portfolio comprises of more than 100 games including Overcooked, The Escapists and Worm franchise. As on May 23, 2018, its shares got listed on the Alternative Investment Market of the London Stock Exchange for trading. Team17’s base office is located in Wakefield, UK.

Recent News
On 11^th December 2019, the company announced that The Survivalists will be launched in the year 2020.

Trading Update (as on 4^th November 2019)
The company released the trading update for the year ended 31^st December 2019. The group has continued to experience robust client traction from both established and new games throughout the second half of the year 2019 and now anticipates both revenue and adjusted EBITDA to be ahead of market anticipations for the existing year.

Financial Highlights (for the six months ended 30 June 2019)
For the first half of the financial year 2019, the company’s revenue grew by 97 per cent to GBP 30.4 millionas compared to GBP 15.4 million in the first half of the financial year 2018. This was due to the company’s continued focus on financial progress and operating efficiency. Gross profit of the company increased by 119 per cent to GBP 15.1 million as compared to GBP 6.9 million in the first half of the financial year 2018. Gross profit margin increased to 49.8 per cent. This was the result of the launch of new games which carry a higher margin. The company’s adjusted earnings per share grew by 356 per cent to 7.31p as compared to 1.63p in the first half of the financial year 2018.

Share Price Performance

Daily Chart as at December-30-19, before the market closed (Source: Thomson Reuters)

On 30th December 2019, Team17 Group PLC shares were trading at GBX 375.20 at the time of writing before the market close (at 12:15 PM GMT), down by 1.78% against the previous day closing price. Stock's 52 weeks High and Low are GBX 390/GBX 189.75.

Valuation Methodology

*Peers: Sumo Group PLC, Keywords Studios PLC, Codemasters Group Holdings PLC, Frontier Developments PLC, and Ten Lifestyle Group PLC.

Conclusion
In the financial year 2019, the company anticipates both revenue and adjusted EBITDA to be ahead of market anticipations for the existing year.This was driven by continued sales momentum across the portfolio of titles. The company also announced The Survivalists through the friends at Nintendo, and to develop The Escapists' universe. Building on current franchises is an important progress pillar for the company.

The company has posted good results in the first half of the financial year 2019.During the period, the company launched several high profiles games, and many more are in the pipeline for the second half of the financial year 2019. The company has a positive outlook on the growth of the industry.

However, the company operates in a competitive industry with the number of new games released grows each year.Another risk which could impact its financial performance is the ongoing technological change in both the development and distribution of games. Excessive dependence on the concentrated customer base is also a risk for the company. Another risk is of IT security, which could impact the operational performance of the company. Brexit could also possibly impact the performance of the company. It could create uncertainty regarding hiring staff from the European Union countries.

Presently, the company is trading near the 52-week high, raising doubts at its upside potential at the current price level. The company’s trailing 12 months P/E, P/CF, EV/Sales and EV/EBITDA multiples are significantly higher as compared to the trailing 12 months industry multiple.

Based on the above rationale and valuation, we have given a “Watch” recommendation at the closing price of GBX 382 (as on 27th December 2019), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.

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