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Since the announcement in December that Evolution would enter the fine room of the stock market and replace SSAB at OMXS30, the owners of the live casino company have seen their investment value increase by approximately 17 percent. During the same period, the index of the most traded companies on the stock market rose about 3 percent.
With a 35x p / e ratio based on the 2021 estimate, consider SEB that valuation can be challenging, “but relative to fast-growing tech peers and competitors of US gaming companies, as well as strong earnings prospects, it remains attractive.” It should be noted that SEB’s target price of SEK 1,100 corresponds to a w / e ratio of 44 times the current year’s earnings estimate.
DNB Markets agrees with the company’s valuation and states that none of the comparison companies with equal or higher valuations can match Evolution’s profitable growth.
The advantage from current levels is driven, as so often before, by the continued structural growth of the live casino market that continues to be driven by crown closings, the scalable business model and growth in the United States.
Net Ent and “potential”
The consolidation of the acquired Net Ent is also highlighted by the two analysis houses as a potential.
“In our opinion, the acquisition of Net Ent was not a necessity given Evolution’s strong organic growth trajectory, but it is an opportunity that consolidates Evolution’s position in the US and increases the potential market for slot products.” writes SEB.
Today, Net Ent’s margins are lower than Evolution’s and will initially weigh on the margin of the merged company. But SEB acknowledges that Net Ent’s margin at the EBITDA level can be raised to the same level as the group’s by around 70 percent through the closure of Net Ent’s live casino operations and key cost savings.
Asian Exhibition “Concerns”
“The question today is how Evolution will attempt to leverage the Net Ent acquisition and how they will create ‘material revenue synergies’, which was highlighted as the primary reason for the acquisition when it was introduced last summer,” DNB writes.
Among the risks to the company, both banks aim to increase competition if entry barriers are lowered to start live casino operations. The relatively large exposure to the unregulated Asian market also stands out as a regulatory concern.
On Thursday morning, Evolution’s share closing was completed in the area around SEK 890 after an increase of about 3.5 percent. With SEB’s price target of 1,100, there is an upside of 25 percent, while DNB’s somewhat more cautious price target of SEK 990 gives a rise of just over 10 percent.
