Newgioco Group has huge upside, Echelon Wealth says

Licensed gaming company Newgioco Group Inc. (OTC:NWGI Quote Chart) has tonnes of opportunity within Italy’s fragmented but fast-growing land-based and online gaming market, says analyst Ralph Garcea of Echelon Wealth Partners.

On Tuesday, the analyst initiated coverage of NWGI with a “Speculative Buy” rating and 12-month target price of $1.80, representing a projected return of 350 per cent. (All figures in US dollars unless noted otherwise.)

Founded in 1998 and headquartered in Toronto, Newgioco operates licensed retail gaming services including online casino, sports betting, virtual sports betting, horse racing and physical slots. In August of 2014, it completed the acquisition of Italian corporation Multigioco, which is now a wholly owned subsidiary.

Garcea notes that the regulated Italian gaming market is both the largest in the EU while at the same time highly fragmented: he estimates that five online players in the region control about 60 per cent of the turnover, while the other 40 per cent is divided amongst between 150 and 200 other licenses. At the same time, Italy’s market is rapidly expanding, Garcea points out, showing 34 per cent year over year growth for a total gross gaming revenue (GGR) of €1.4 billion in 2017.

Garcea says Newgioco has a “tremendous opportunity” before it in rolling up smaller operators while at the same time staying under the radar of the largest players.

“Newgioco intends to grow through acquisitions and organic development of its distribution network in Italy, in addition to exploring new opportunities in regulated gaming markets internationally – including the US sports betting market,” says Garcea. “Newgioco’s strategy is to bring operators in the fragmented Italian gaming market under ownership and provide professional management and additional resources and services, and seeks to capitalize on the license tender auction known in Italy as the ‘Bando di Gara’ for land-based license renewal that is expected to occur within the next 18-24 months.”

“We estimate that the combined global online gambling GGR could grow to ~$75B in 2025 for a CAGR of ~6.1 per cent,” says the analyst. “The overall global gambling market (including land-based and tribal casinos) is expected to exceed $600 billion by 2025. We estimate that online gambling should go from ~8 per cent of overall GGR in 2010 to ~20 per cent by 2025; and mobile should go from ~12 per cent of online GGR in 2010 to over 55 per cent by 2025.”

Garcea thinks Newgioco will generate EBITDA in 2018 of $3.8 million on revenues of $35.4 million and EBITDA in 2019 of $5.4 million on a topline of $39.2 million.

The analyst says that his investment thesis relies on a number of items: the aforementioned highly fragmented nature of Italy’s gaming sector; Newgioco’s betting platform, which Garcea calls among the most advanced in the sports betting world; Newgioco’s experienced managment team, which has over 100 years’ experience in gaming and technology development; potential upside from the company’s use of AI and blockchain for its betting technology, in development; Newgioco’s future B2B revenue opportunities.