Focused Core Markets And Cost Optimization Will Drive Future Success

Key Takeaways

• Focus on core markets and strategic acquisitions are boosting sustainable growth, strengthening revenue streams, and elevating long-term profitability.
  
• Cost optimization and deleveraging are expected to improve net margins, increase earnings, and stabilize future earnings through enhanced operational efficiencies.
  
• High leverage, increasing debt, cash neutrality concerns, and declining share price suggest potential financial instability and challenge in gaining investor confidence.

Catalysts

Operates as a betting and gaming company in the United Kingdom, Italy, Spain, Romania, Denmark, and internationally.

• Evoke's focus on its 5 core markets, now making up 90% of its revenue, is expected to drive 5% to 9% revenue growth through market-leading positions, which should also support higher future earnings.
  
• The company's enhanced capabilities and efficiency gains are projected to elevate long-term profitability, with an expected EBITDA margin of at least 20% in FY25, positively impacting net margins.
  
• Strategic acquisitions, like that of Winner in Romania, have bolstered business mix transformation, enhancing sustainable growth and strengthening revenue streams across its core markets.
  
• A significant cost optimization program, targeting £15 million to £25 million in further savings in 2025, is likely to improve net margins and increase earnings due to operating model refinements and supplier efficiencies.
  
• Commitment to deleveraging aims to reduce financial leverage, with plans to attain a leverage ratio below 3.5x by 2027, thereby enhancing return on equity and future earnings stability.

Evoke Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Evoke's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -10.9% today to 4.8% in 3 years time.
• Analysts expect earnings to reach £95.5 million (and earnings per share of £0.26) by about May 2028, up from £-192.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £140.8 million in earnings, and the most bearish expecting £29.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.1x on those 2028 earnings, up from -1.2x today. This future PE is lower than the current PE for the GB Hospitality industry at 17.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.28%, as per the Simply Wall St company report.

Evoke Future Earnings Per Share Growth

Risks

• The company's net debt increased by £30 million despite a focus on reducing leverage, which could impact future profitability and financial stability.
  
• High leverage remains a risk, with a leverage multiple of 5.7x and plans to reduce it only by 2027, potentially affecting cash flow and net margins.
  
• The company expects to remain cash neutral, with significant cash outflows related to transformation costs and M&A, which may hinder earnings growth.
  
• The share price has declined by 30% since the CEO's tenure began, indicating investor skepticism about the company's revenue and profit growth prospects.
  
• Market reactions to lower-than-expected Q1 growth and the lack of immediate cash generation could affect investor confidence and future earnings projections.

Valuation

• The analysts have a consensus price target of £0.956 for Evoke based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.09, and the most bearish reporting a price target of just £0.76.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.0 billion, earnings will come to £95.5 million, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 16.3%.
  
• Given the current share price of £0.53, the analyst price target of £0.96 is 44.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.