M Partners analyst Nicholas Cortellucci believes Playmaker Capital (Playmaker Capital Quote, Chart, News, Analysts, Financials TSXV:PMKR) could parlay itself into a strong investment opportunity, initiating coverage on Monday with a “Buy” rating and target price of $1.25/share for a projected return of 74 per cent at the time of publication.
Founded in 2019 as a partnership with Relay Ventures and headquartered in Toronto, Playmaker Capital is a digital sports media company currently rolling up brands and operators with an eye on creating an ecosystem of assets in the space.
Playmaker’s primary business model pillars include creating a large and diverse audience of sports fans, building engagement across multiple channels of distribution, using technology to monetize and deliver top-tier UI/UX and developing tools to acquire, retain and convert users.
Corellucci said ideal acquisition targets for Playmaker include companies that can bring significant strategic benefits to the Playmaker ecosystem, are financially accretive, have an equity and/or earnout component, have proven and aligned management teams, and are profitable, or have a clear path to profitability.
“Playmaker’s portfolio of digital media assets has highly engaged fan bases that are sought after by global brands and sports betting operators,” Cortellucci said. “Major online sports betting (OSB) operators like DraftKings have massive marketing budgets which are allocated towards acquiring users that closely resemble those on PMKR’s platforms.”
The company made a significant move in April, acquiring a cornerstone asset in Futbol Sites, which posted $6.2 million in revenue and $2.2 million in adjusted EBITDA in 2020, for $35 million, followed by completing an RTO of Apolo III Acquisition Corp., which included a $24 million raise of subscription receipts.
“PMKR tends to not participate in formal M&A processes, allowing it to acquire strategic assets for low multiples,” Cortellucci said. “Playmaker pitches target companies on the Playmaker vision and ecosystem, which provides differentiation from other potential acquirers.”
From there, Playmaker has continued executing on the acquisition front, completing an additional six transactions in the second half of 2021 at a total spend of approximately $50 million, including cash, shares, and earnouts.
New additions to the company’s portfolio in that time include Brazil-based Fanáticos Por Futebol, North America-focused YB Media (operating professionally as YardBarker), online gaming technology solutions provider Two-Up Agency, Varsky Sports and the associated partnership with Argentinian sports journalist Juan Pablo Varsky, Edmonton-based hockey-focused digital media group The Nation Network, and Brazilian poker platform Grupo SuperPoker.
“We are seeing strong momentum from all three levers of our growth engine – organic, acquisition, and synergies – and we will continue our efforts to maximize each one,” said Jordan Gnat, Founder and CEO of Playmaker in the company’s November 15 press release. “We continue to build our pipeline, as evidenced by the recently announced acquisitions of VarksySports, SuperPoker and The Nation Network. The integration of these companies is well underway, and we are thrilled with the level of collaboration between our companies and the shared vision of building a market-leading sports media business.”
Cortellucci projects a significant step forward for Playmaker in the near future, projecting a near doubling of revenue from the forecasted $13.6 million in revenue for 2021 (all report figures in US dollars) to $26.3 million in 2022, following a small step up to a projected $31.3 million in 2023, a potential year-over-year increase of 19 per cent.
From an EBITDA perspective, Cortellucci foresees physical growth from $5 million in 2021 to a projected $9.2 million in 2022, a potential year-over-year increase of 84 per cent. From there, Cortellucci projects a move into eight figures at $10.6 million for 2023; in that timeframe, he forecasts the company’s EBITDA margin to drop from 37 per cent in 2021 to 35 per cent in 2022, then to a projected 34 per cent in 2023.
From a valuation perspective, Cortellucci has Playmaker’s EV/Sales multiple projected to drop from 7.9x in 2021 (4.1x for the peer group) to a forecasted 4.1x in 2022 (3.3x for the peer group), then dropping again to 3.4x in 2023 (2.8x projected for the peer group).
The EV/EBITDA multiple tells a similar story, with Playmaker forecasted to drop from 21.3x in 2021 (13.7x for the peer group) to a projected 11.6x in 2022 (10.1x for the peer group), then dropping again to a projected 10.1x in 2023 to beat the peer group forecast of 10.7x.
Corellucci said Playmaker is currently trading at a discount to its peers.
“Playmaker currently trades at 3.4x 2023 sales and 10.1x 2023 adjusted EBITDA compared to its peers at 2.8x 2023 sales and 10.7x 2023 adjusted EBITDA. We think that PMKR’s superior margins, organic growth and track record of strategic acquisitions should warrant a premium multiple,” he wrote.
“PMKR is rolling up digital sports media companies at accretive multiples, creating an ecosystem of assets that are becoming increasingly important to sports betting operators that are vying for customers,” Cortellucci said. “We believe that as countries such as Canada, Brazil and Argentina launch legal gambling and the U.S. market continues to open up, this effect will only grow larger, boding well for PMKR’s value proposition.”
Playmaker Capital has proven to be a solid signing for many investors in 2021, producing a 28.3 per cent return since it began trading on the TSX Venture Exchange on June 3, though it has cooled off slightly over the last month after hitting a high point of $0.89/share on November 15.