Post-GiG Split Will Enable New Partnerships And Acquisitions

Key Takeaways

• Gentoo Media's independence post-split allows for flexible expansion into new partnerships and acquisitions, likely driving revenue growth.
  
• Diversification across markets and platforms aims to sustain growth and mitigate risks from market or regulatory changes.
  
• Substantial costs from the GiG split and increased marketing expenses could strain margins, while new investments may elevate CapEx without immediate revenue increases.

Catalysts

An iGaming technology company, together with its subsidiaries, provides solutions, products, and services to iGaming operators in Nordic countries, other European countries, and internationally.

• Gentoo Media's recent split from the GiG platform allows it to operate with greater flexibility as a standalone entity. This change provides the firm the ability to explore new partnerships and acquisitions, which is expected to drive revenue growth.
  
• The company's focus on expanding into new markets and strengthening the presence of their assets such as Casinomeister and Casinotopsonline will likely bolster revenue and earnings in 2025.
  
• Investment in an upgraded media and MarTech platform is anticipated to enhance operational efficiency and the quality of services, expected to improve revenue significantly once fully implemented.
  
• The diversification strategy involving more markets, websites, and partners is designed to ensure sustained revenue growth by mitigating risks associated with market or regulatory disruptions in any single area.
  
• Strong operational cash flow generation post-company split, combined with the ability to optimize cost structures and undertake value-adding applications, has opened up new capital allocation opportunities. This will potentially result in increased shareholder value through improved net margins and cash generation.

Gentoo Media Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gentoo Media's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.4% today to 27.5% in 3 years time.
• Analysts expect earnings to reach €45.8 million (and earnings per share of €0.36) by about February 2028, up from €25.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €52.3 million in earnings, and the most bearish expecting €39.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, up from 10.0x today. This future PE is lower than the current PE for the NO Hospitality industry at 19.8x.
• Analysts expect the number of shares outstanding to grow by 4.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.76%, as per the Simply Wall St company report.

Gentoo Media Future Earnings Per Share Growth

Risks

• Gentoo Media's past year involved a complicated split from GiG, which incurred substantial costs and may have introduced operational distractions, potentially impacting net margins.
  
• There is market uncertainty in Brazil due to new regulations, which may lead to short-term bumps and could impact revenue from this market.
  
• The company's strategy involves significant investments in new platforms and projects, which could elevate CapEx and may not immediately translate into increased revenue.
  
• The business faces challenges with website performance due to Google's frequent algorithm updates, which can affect traffic and revenue generation.
  
• Marketing expenses have increased significantly, which, if not properly managed or optimized, could erode EBITDA margins in the future.

Valuation

• The analysts have a consensus price target of NOK33.498 for Gentoo Media based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €166.6 million, earnings will come to €45.8 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of NOK21.85, the analyst price target of NOK33.5 is 34.8% 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.