Buy Score Media and Gaming, Eight Capital says

It’s game on for Score Media and Gaming (Score Media and Gaming Stock Quote, Chart, News, Analysts, Financials TSX:SCR) in Canada’s soon-to-open $4-billion sports betting market, which just had a legalization bill passed through Parliament. Score Media received an update on Tuesday from Eight Capital analyst Suthan Sukumar, who reiterated his “Buy” rating and $65.00 target, saying the stock is rich in near-term catalysts.

The Canadian Senate approved on Tuesday Bill C-218, which amends the Criminal Code to allow for gambling on single sports games, a practice that had been up until now reserved for horse racing events. The bill, which passed a vote in the House of Commons earlier this year, was passed by a 57-20 vote, getting in before Parliament’s close for the summer and ushering in a new era for legalized gambling in Canada.

The private members bill introduced by Conservative MP Kevin Waugh has received backing across party lines, as legislators look to bring betting out of the grey and black markets and make the multi-billion dollar industry a legalized and regulated part of the economy.

“Canadians are placing billions of dollars worth of bets annually through these [offshore] sites, that go entirely unregulated in Canada,” said bill sponsor Senator David Wells, as reported by the CBC.

Bill C-218 now heads to the Chief Justice of Canada for royal assent and should be passed into law in a few days, which should lead provincial gaming authorities to adapt their own regulatory frameworks to suit the newly opened field.

Sukumar said Ontario is expected to be a first-mover in creating an iGaming market with private sector operators and a potentially go-live coming before the end of the year.

“We expect the AGCO to share more details on the final regulatory framework in the coming weeks and months, which will include details like tax rates, licensing requirements and the application process,” Sukumar wrote.

“We expect British Columbia, Alberta, and Quebec to be on deck next, with other provinces to potentially follow suit after. We believe operator licenses could be issued in Ontario in the coming months, with potential for the market to go live as early as late Q4, or into Q1,” he said.

Sukumar said Canada’s market should attract the attention of large global incumbents and newer entrants alike, putting the market conservatively at about $4 billion for online gaming.

“Players like DraftKings see potential for [Canada’s market] to grow to $5-8 billion, while the black market is estimated to be closer to $10-15 billion, which highlights the significant growth potential ahead,” Sukumar said.

“Ontario alone is a significant market given its adult population (11.4 million), which would place it as the fifth-largest jurisdiction in North America. That said, we believe Ontario may be considering a direct licensing model with no limits on participants, which would make for a highly competitive environment. We also expect the provincial lotteries to get in on the action and launch offerings for single-event sports betting to complement existing parlay betting offerings,” he said.

Score Media, which owns a popular sports scores, news and stats app and has a sports betting business across a number of states in the US, saw its share price rocket up earlier this year, going from about $7.50 to above $50.00 by early February. The stock suffered a big pullback, however, and was down below $20.00 in May before rallying in recent weeks. SCR popped almost eight per cent on Tuesday to $29.70 per share.

Sukumar said the passing of Bill C-218 is good news for Score Media.

“We view this as a major catalyst, opening up a new, significant market opportunity to the broader regulated online gaming industry and its participants, including well positioned homegrown operators like SCR and [e-sports and media company] PMML and proven global gaming suppliers like Bragg Gaming,” Sukumar wrote.

“In particular, we believe SCR is poised to capture a leadership position in what we estimate to be a $4-billion market opportunity across online sports betting (OSB) and iGaming in Canada over time by leveraging its strong brand and loyal user base. In fact, we see potential for SCR to be more aggressive with its growth playbook in Canada, relative to the US, given this inherent home court advantage, which could drive better than expected share gains and revenue growth,” he said.

“We continue to see a catalyst-rich outlook for the company in the near-term with new state rollouts and new market access agreements in the US (ongoing), launch and cross-sell of iGaming (H2), and potential M&A (ongoing),” Sukumar wrote.

At press time, Sukumar’s $65.00 target represented a projected one-year return of 118.9 per cent.