Expansion Into North America And Brazil Will Empower Slingo Gaming

Key Takeaways

• Expansion into new regulated markets in North America and Brazil offers significant growth potential, positively impacting revenue through increased geographic reach.
  
• Strong Slingo brand performance and strategic partnerships in lotteries and social gaming enhance revenue and margins through diverse income streams.
  
• Heavy reliance on the Slingo brand and uncertain regulatory landscapes could hinder revenue growth and sustainability amidst rising competition and market volatility.

Catalysts

Develops, publishes, and licenses mobile gaming content in the United Kingdom, the United States, Isle of Man, Malta, Gibraltar, and internationally.

• The expansion into new regulated markets, particularly in North America and Brazil, creates potential revenue growth opportunities as more states in the U.S. plan to legalize iGaming, expanding Gaming Realms' footprint geographically. This is expected to impact revenue positively.
  
• Optimizing and growing existing partnerships with operators, particularly in the U.S. and Canada, suggests potential for organic revenue growth, as 70% of growth came from existing partners, and new partnerships further layer additional revenue. This should positively impact overall earnings.
  
• The strong performance and popularity of the Slingo brand, alongside strategic brand licensing in sectors like lotteries and social gaming, enhances brand strength and consumer engagement. This likely contributes positively to both revenue and net margins through diverse income streams.
  
• The integration of third-party games and development of new, innovative games such as unique Slingo formats position the company to exploit growing market demand in iGaming, potentially increasing revenue and profitability.
  
• Strategic share buybacks using surplus cash, aimed at increasing shareholder value, as well as investments in additional game development and potential acquisitions, are expected to enhance earnings per share and cash flow management in the future.

Gaming Realms Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gaming Realms's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 31.1% today to 34.7% in 3 years time.
• Analysts expect earnings to reach £12.9 million (and earnings per share of £0.04) by about August 2028, up from £8.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £15.9 million in earnings, and the most bearish expecting £9.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.6x on those 2028 earnings, up from 16.8x today. This future PE is greater than the current PE for the GB Entertainment industry at 15.0x.
• 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 9.23%, as per the Simply Wall St company report.

Gaming Realms Future Earnings Per Share Growth

Risks

• The volatility in revenues from brand licensing and potential lumpiness in financial periods could lead to unpredictable earnings, affecting net margins.
  
• The reliance on the success of the Slingo brand means a failure to further innovate or diversify could impact revenue growth and long-term sustainability.
  
• Increasing competition within the U.S. iGaming market, particularly as new states regulate, could dilute Gaming Realms' market share, impacting future revenue potential.
  
• Uncertainty around regulation in key markets like the U.K. could lead to potential restrictions and compliance costs, negatively affecting profit margins and earnings.
  
• The potential plateauing of growth in mature markets like the U.K. and Italy may limit revenue growth if newer markets don't develop as expected.

Valuation

• The analysts have a consensus price target of £0.663 for Gaming Realms 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 £0.75, and the most bearish reporting a price target of just £0.57.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £37.2 million, earnings will come to £12.9 million, and it would be trading on a PE ratio of 19.6x, assuming you use a discount rate of 9.2%.
• Given the current share price of £0.51, the analyst price target of £0.66 is 23.7% 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.