Despite mixed fourth quarter 2017 results, Jackpotjoy’s (JPJ:LON, TSX:ITX) expansion plans and prospects for improved cash flow going forward merit a target raise, says Ralph Garcea, analyst with Echelon Wealth Partners, who on Wednesday reiterated his “Buy” rating and upped his 12-month target price to £13.00/C$23.00 from £12.00/C$20.00.
Online gaming company Jackpotjoy announced its Q4/17 and year ended December 31, 2017, financials on Tuesday, posting a 14 per cent year-on-year increase in revenue and increase in gaming revenue to £304.6 million, up from £266.9 million the previous year. The company reported weaker-than-expected EBITDA margins in Q4, however, as a result of higher operational expenses, with Garcea saying he expects to see slightly lower margins in H1/18 followed by margin expansion in H2/18 to above 35 per cent.
“With a mix of leading edge platforms (The Stars Group and 888/Dragonfish) and proprietary solutions (Vera&John and Gamesys), we expect growth to include the leveraging of the Casino, Poker, and Mobile offerings into the large Bingo customer base,” says the analyst in a client update. “Mobile now accounts for roughly half of total revenue and more than half of new customer acquisitions. Mobile provides >2.5x the average revenue of a desktop customer.”
Garcea sees Latin American expansion for the company, which could take it past the £350 million revenue run-rate by 2019 or sooner. As well, the analyst says that improved free cash flow exiting 2018 could mean a dividend is in the cards for 2019.
“JPJ is currently trading at a 2018E EV/Sales, EV/EBITDA, and P/E of 2.7x, 7.9x, and 7.0x, respectively, versus its Global Gaming comparables average of 3.0x, 10.1x, and 17.3x, respectively,” says the analyst.
Garcea has raised his 2018 revenue estimate from £324.6 to £335.11 and lowered his 2018 EBITDA estimate from £108.3 to £105.34.
The analyst’s “Buy” rating comes with a DCF-based target which has been raised from £12.00/C20.00 to £13.00/C$23.00, representing a projected return of 47 per cent at the time of publication.