By Richard Gill, CFA

Interim results from Gaming Realms, the developer, publisher and licensor of mobile real money and social games, have shown a continuation of trends seen during the last financial year. These numbers are the first to be released by the company following the decision to sell a 70% stake in most of its UK online casino B2C businesses to River UK Casino Limited – read our take HERE – with the deal having completed in mid-August.

For the six months to 30^th June 2018 total revenues were down by 27% at £11 million. The main reason for the fall was a 43% decline in revenues from the B2C brands sold post period end to £4.1 million, along with a 48% fall in social gaming revenues to £2.1 million. These were offset by a 28% rise in ongoing real money and licensing revenues to £4.8 million.

Despite the revenue fall, adjusted EBITDA came in at £0.4 million for the period, up from a loss of £1.1 million in H1 2017. This came as marketing costs were cut significantly across the business, from £6.44 million to £2.78 million, and admin expenses fell from £5.47 million to £3.8 million.

After accounting for £2.46 million of amortisation costs and £0.51 million of finance expenses, the statutory net loss for the year was £2.62 million, down from £3.76 million in the comparative period. Total cash at the period end stood at £0.43 million, down from £1.08 million, with the coffers being boosted during the period by a £1.85 million payment for the disposal of the affiliate marketing business. We note however that since the period end, the £4.2 million initial payment has been received from River UK Casino for the sale of the UK B2C brands and so we believe any fears over a cash call are misplaced.

Gaming Realms’ strategy following the disposal is to focus on the licensing side of the business, which is high margin, as well as the remaining real money gaming brands. To that effect, good progress was made in the first half with 6 new contracts signed to license the company’s flagship ‘Slingo Originals’ portfolio of games in New Jersey and Europe. Licensing revenue increased by 175% to £0.6 million in the half, and by 88% in the 9 weeks post the period end evidencing continued traction.

In the remaining real money gaming operations, the launch of new ‘white label’ real money gambling sites for Health Lottery was seen during the first half. In the nine weeks since the period end, revenues excluding the sold brands have risen by 10% with Slingo Originals games launched with major partners GVC and Rank.

Assessment

Shares in Gaming Realms have fallen to near all-time lows of 6.7p on the back of the results, to capitalise the business now at just £19 million. We think this is an unfair reaction as the numbers have shown that management reacted well to put the business into EBITDA profitability for the first half, significantly reducing the losses of H1 2017. Also, the period marks a transition point, with the benefits of the new licensing driven strategy only likely to become apparent over the coming months as more deals are signed.

We are currently updating our forecasts for Gaming Realms, which we expect to release shortly. However, we continue to believe that the shares look very cheap indeed, especially noting the current cash position and that further earn-out consideration is achievable from River Casino over the next year up to to a maximum of £14.7 million which, added to existing cash, equates to round about the current market cap. Moreover, there is a Put and Call option for Gaming Realms’ to sell its remaining 30% share of River UK Casino at the end of the earn out period based on an Enterprise value of 5.5 times River UK Casino’s EBIT. In effect, the current stock price ascribes no value whatsoever to the Put & Call option nor growth in the new license focused business.

Ahead of updating our forecasts our stance remains as Conviction Buy.

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