By Richard Gill, CFA
Gaming Realms (GMR), the developer and licensor of mobile focused gaming content, has announced a cracking set of results for the six months to 30th June 2020. At the top line, revenues grew by 66% to £5.2 million, with adjusted EBITDA going from a loss of £0.1 million in H1 2019 to a profit of £1.24 million. As flagged in the company’s recent trading update, revenue growth benefitted from the effects of the COVID-19 lockdown, with similar levels of growth maintained post period-end.
Again, the numbers were driven by an excellent performance from the Licensing division, which grew revenues by 104% to £3.4 million. Of this growth, £0.8 million came from existing partners, with £0.9 million from integrations that went live after 30th June 2019. Adjusted EBITDA soared from £0.73 million to £1.73 million.
Meanwhile, the Social gaming division, previously considered as non-core, put in a good performance by growing revenues by 29% to £1.8 million. This was due to an increase in new Slingo content being produced and also improved player management and new player engagement features. The division delivered an impressive adjusted EBITDA of £0.8 million, up from £0.4 million in H1 2020, despite marketing spend being reduced to a negligible £30,000 from £100,000.
Growth in the period was driven by the further expansion of the company’s international partners and the release of new Slingo games, which are said to have had increased take up by consumers. During the period Gaming Realms went live with five tier-1 operators: Gamesys, Sky Betting & Gaming, 888 Casino in the UK, DraftKings in New Jersey, US, and Caliente in Mexico, securing a wider distribution base for its games. It also released four new games into the market, including Slingo Centurion in partnership with Inspired Entertainment, with the portfolio containing 40 games at the period end.
Strong growth has continued since the period end, with Licensing revenues up by 140% in July and August, with Social revenues up by 56%. Cash as at 31st August is said to have been £1.9 million, up from £0.85 million at the period end following a reversal of working capital outflow seen in the first half. The 2020 financial year as a whole is expected to be cash flow positive as a result of high margin growth offsetting development costs, with deferred consideration of £1.5 million also due by the year end from the sale of its B2C real money gaming assets last year. Also; the company has gone live with three further new operators, Jumpman Gaming, White Hat Gaming and MrQ; signed a distribution deal signed with major European games distributor Oryx Gaming; and agreed a direct integration and expanded deal in US with Rush Street Interactive.
These are an excellent set of figures from Gaming Realms, and slightly ahead of those flagged up in the recent trading update. The integration with a range of new partners, combined with expected growth with existing clients, bodes very well for further strong trading in the second half.
From these results we note in particular the excellent growth being seen in the fast growing US markets, which are steadily being opened up to regulated gaming activities at the state level. Gaming Realms generated 56% of its sales from the US in the first half and flagged that the market is expected to grow at a compound rate of 17% from 2020 to 2025 and is expected to be worth $6.1 billion by 2025. In New Jersey, where the company already has an operating licence, revenues grew by 94.7% year-on-year, with the company maintaining its market share of 3.5% of total gross gaming revenues. Subject to regulatory approvals, the company expects to be licensing its games in Pennsylvania by the start of 2021, followed by Michigan and further states thereafter as and when they regulate.
As we mentioned in recent commentary, we were expecting Gaming Realms to post adjusted EBITDA of just under £1.5 million for the full year to December 2020. But with over 80% of this already achieved in the first half we are now working on updating our forecasts. Numbers for the next two years are also under review but we continue to expect strong growth in 2021 and 2022 as the benefit of operational gearing and the addition of further licensing partners comes through.
Gaming Realms shares currently trade at 21.87p following the release of the results, up from a recent low of 4.45p seen in March this year and at a c.4 year high. Our target price on our current forecasts is 25.37p, implying further upside potential even before we revise our numbers to consider the better than expected trading. Our stance remains at Conviction Buy.
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