Partnerships With Stake And Hard Rock Digital Plus AI Will Expand Global Gaming Presence

Key Takeaways

• Market expansion in Brazil and the U.S. with key partnerships could drive significant revenue growth and increase competitiveness.
  
• New product innovations, including AI solutions, and strategic partnerships aim to improve efficiency and boost profitability and margins.
  
• Client losses and regulatory impacts could challenge earnings, while expansion efforts face nonrecurring costs and competitive threats may influence market share.

Catalysts

Operates as an independent provider of sports betting technology and services to the betting and gaming industry in Europe, the Americas, and internationally.

• Kambi's entry into the Brazilian market with partners such as Stake and KTO, along with the launch of Odds Feed Plus with Hard Rock Digital in the U.S. and Rei do Pitaco in Brazil, suggests potential revenue growth from new market expansion.
  
• The innovation agreement with Ontario Lottery and Gaming Corporation, which involves taking over a long-term contract from FDJ Group, presents an opportunity for sustained revenue increase through a significant new partnership.
  
• The rollout of Kambi's new product portfolio, particularly the Turnkey sportsbook and AI-powered solutions, aims to enhance product competitiveness and operational efficiency, potentially improving revenue and net margins due to higher demand and cost savings.
  
• Continued AI development and the expansion of AI's application across more sports could lead to reduced operational costs and enhanced trading margins, likely boosting net margins and profitability.
  
• The ongoing share buyback program, which aims to return capital to shareholders, is expected to contribute to increased earnings per share (EPS) as the share count decreases.

Kambi Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kambi Group's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 11.1% in 3 years time.
• Analysts expect earnings to reach €20.8 million (and earnings per share of €0.71) by about March 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 25.1x on those 2028 earnings, up from 17.2x today. This future PE is greater than the current PE for the SE Hospitality industry at 12.0x.
• 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 7.48%, as per the Simply Wall St company report.

Kambi Group Future Earnings Per Share Growth

Risks

• The migration of major clients like Kindred and LeoVegas away from Kambi's turnkey solutions, alongside associated revenue decreases, could negatively impact future earnings if not offset by new client acquisitions.
  
• New gaming taxes and increased regulatory costs in markets like Colombia, Sweden, the Netherlands, Illinois, Ohio, and Indiana could suppress net margins and profitability.
  
• While Kambi is expanding into new markets such as Brazil and with partnerships like OLG in Ontario, these initiatives come with nonrecurring costs and potential integration challenges that may temporarily affect net earnings in the short term.
  
• Although Kambi is focusing on AI enhancements for its product offerings, the impact of such technology-driven efficiencies on revenues is uncertain and may require additional investment before significant earnings improvements are realized.
  
• The competitive landscape, including possible new entrants using blockchain and prediction markets like Polymarket, as well as established competitors, could impact Kambi’s market share and revenue growth if they fail to retain clients or attract new ones effectively.

Valuation

• The analysts have a consensus price target of SEK171.843 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 SEK231.18, and the most bearish reporting a price target of just SEK100.26.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €187.2 million, earnings will come to €20.8 million, and it would be trading on a PE ratio of 25.1x, assuming you use a discount rate of 7.5%.
• Given the current share price of SEK100.5, the analyst price target of SEK171.84 is 41.5% 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.