Live casino systems provider Evolution Gaming Group AB (STO: EVO) started trading on Nasdaq First North Stockholm on March 20th 2015. In one week the stock advanced 6,13% from the start of trading to close at 95.15% and is thusly almost 20% above the IPO price of SEK 80 per share. The 80 SEK per share was also the upper bound of the range in the IPO, continuing a trend of wildly successful Initial Public Offerings in Nordic countries as of late.
At 95.15 per share, the company is valued nearly 3.5 billion SEK as it has 35 970 377 shares. No new cash came toward the company in the IPO, it was the case of founders and management selling shares. Instead Evolution Gaming estimated the IPO will cost a lofty maximum of 4.5 million Euros as commission to managers and other advisors. The clean balance sheet containing very little debt certainly did not require cash-in.
Largest owners before the IPO were British billionaire Richard Livingstone, whose billionaire brother Ian is in the Board of Directors, company founder % CEO Jens von Bahr, Fredrik Österberg and Richard Hadida. After the offering the first 3 maintain slightly over 10% of shares each and Richard Hadida still has slightly over 5% holding. Swedbank Rober Fonder became another large shareholder in the IPO as it committed to acquire about 9.5% of shares. Other high profile investors buying shares were Staffan Persson, Peter Lindell, Erik Selin and Niclas Eriksson, who combined had committed to acquiring about 8% of shares. Further information of the current shareholder structure is promised in April.
The business to business focused group enables real time casino game table dealing to be provided via live streaming video to electronical devices (tablets, smartphones, computers). It aims to be the world leader in the field and currently employs about 1300 people. Some examples from over 70 total customers are Betsson, Poker Stars, Unibet and William Hill.
The company targets faster growth than the industry average in Europe. Global gambling industry market data provider H2 Gambling Capital estimates market to grow by 18% per annum until 2018. Profitability target is to maintain an EBITDA margin above 35%. Dividend policy is to distribute a minimum of 50% of net profit as dividends.
Thus far revenue target has been met with growth from 31 million SEK in 2012 to 49 million in 2014 while Operating Margin has been hovering at or slightly below 35%. With earning per share of 0.35 SEK last year, trailing earnings per share is astronomical. Forward estimates however do seem a lot more reasonable. Morningstar expects Price/prospective earnings to be close to 30 whereas Remium estimates EBIT this year may reach 150 million SEK, which would suggest EV/EBIT of about 23 and sees further upside in the share. Important deals signed in Q4 2014 suggest growth may well pick up this year.
Some of the revenue comes from fixed monthly fees. Variable fees are commissions by operators, with Evolution Gaming typically getting a share of the net profit of the live casino operators' net profit. Both the revenue and cost side debend on which sort of service is to be provided, with Evolution Gaming operating the live casino with their own professional dealers working on two live studios (one in Latvia and one in Malta) and then providing some additional services. Gambling industry is a cyclical consumer industry that carries some regulatory risks.
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