Expanding Into Brazil And Ontario Will Diversify Betting Options

Key Takeaways

• Expansion into markets like Brazil and Ontario, and partnerships such as with OLG, aim to create new revenue streams and stabilize revenue growth.
  
• The efficiency program with AI improvements targets cost reduction, potentially enhancing net margins and earnings by decreasing operational expenses.
  
• The reliance on a few major partners and regulatory challenges in key markets could negatively impact revenue stability and financial performance.

Catalysts

Provides sports betting technology and services to the betting and gaming industry in Europe, the Americas, and internationally.

• Kambi’s expansion into new markets, such as Brazil and Ontario, with partnerships like the one with the Ontario Lottery (OLG), is expected to generate additional revenue streams, particularly towards the end of H2, impacting overall revenue.
  
• The launch and anticipated growth of the Odds Feed+ product, which provides premium, precise pricing and is backed by significant liquidity, are expected to attract Tier 1 and Tier 0 operators, thus boosting revenue and potentially improving net margins.
  
• Increased activity in regulated markets and reduced reliance on a small number of large customers are expected to stabilize the revenue base, potentially leading to more consistent revenue growth and improved earnings sustainability.
  
• The ongoing efficiency program, which includes AI-driven improvements in trading operations, is aimed at reducing costs, which could lead to improved net margins and overall earnings as those savings materialize throughout the year.
  
• The strategy to secure more contracts with state-owned and lottery businesses, as demonstrated by the OLG deal, could significantly boost revenue and earnings, positioning Kambi favorably in the public sector sports betting space.

Kambi Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kambi Group's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 11.2% in 3 years time.
• Analysts expect earnings to reach €20.8 million (and earnings per share of €0.71) by about May 2028, up from €15.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €25 million in earnings, and the most bearish expecting €16.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.9x on those 2028 earnings, up from 17.9x today. This future PE is greater than the current PE for the SE Hospitality industry at 14.2x.
• Analysts expect the number of shares outstanding to decline by 2.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.45%, as per the Simply Wall St company report.

Kambi Group Future Earnings Per Share Growth

Risks

• The macroeconomic environment has become more volatile recently, which could affect future net margins and overall financial stability.
  
• The slow regulatory and market adaptation process in the Brazilian sports betting market could delay significant revenue generation.
  
• Increased gaming taxes and newly implemented deposit limits in the Netherlands, Sweden, and Illinois could negatively impact revenue streams and net margins.
  
• Kambi's reliance on a few large partners, such as Kindred, which exited the US market, may impact revenue concentration and stability.
  
• Volatility in foreign exchange rates, particularly the devaluation of the US dollar, could continue to have negative effects on earnings and adjusted EBITA.

Valuation

• The analysts have a consensus price target of SEK169.381 for Kambi Group 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 SEK226.96, and the most bearish reporting a price target of just SEK98.43.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €186.2 million, earnings will come to €20.8 million, and it would be trading on a PE ratio of 23.9x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of SEK106.0, the analyst price target of SEK169.38 is 37.4% 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.