Bragg Gaming gets new $16.00 target from Eight Capital

Eight Capital analyst Adhir Kadve has dropped his price target on Bragg Gaming (Bragg Gaming Stock Quote, Chart, News TSXV:BRAG) while maintaining a “Buy” rating in an update to clients on Wednesday.

Founded in 2004 and headquartered in Toronto, BRAGG Gaming offers turnkey solutions for retail, online and mobile iGaming platforms, as well as casino content aggregator, sportsbook, lottery, marketing and operational services.

Kadve’s updated analysis comes after BRAGG filed its preliminary results for the fourth quarter of 2021, which Kadve noted to be ahead of consensus expectations.

“Bragg cited that the key reason for the beat and the increase in guidance was expansion within current markets as well as strength in new market entries (like the Netherlands and Greece),” Kadve said. “With the ongoing roll-out in the UK market (where Bragg is leveraging existing European relationships to accelerate its market penetration), launch of the Ontario iGaming market on April 4th and the closing of the Spin acquisition; we see the opportunity for Bragg to expand its overall TAM from the current US$12.5 billion to over US$18 billion by EOY 2022.”

Bragg’s preliminary results call for €15.4 million in revenue, which would come out ahead of the consensus estimate of €12.3 million, as well as the Eight Capital projection of €13.1 million. The results also indicate adjusted EBITDA coming in at €1.3 million for an eight per cent margin, essentially in line with the Eight Capital estimate of €1.2 million and a nine per cent margin, and slightly ahead of the consensus projection of €1 million and an eight per cent margin.

The company also presented an update to its financial guidance for 2022, which is now advocating revenue between $68 million and $72 million compared to its previous guidance of between €59 million and €61 million, while also coming out ahead of the projections set out by both the consensus (€59.4 million) and Eight Capital (€60.4 million).

Meanwhile, Bragg’s new adjusted EBITDA guidelines are set between €9.5 million and €10.5 million for a margin between 14 and 15 per cent, a step up from the previous guidance of between €6 million and €7 million for a margin between 10 and 11 per cent.

“The ongoing execution of our iGaming content and platform expansion and new market initiatives are driving Bragg’s consistent operating momentum leading to near- and long-term financial growth,” said Yaniv Spielberg, Chief Strategy Officer for BRAGG Gaming in the company’s February 8 press release. “Looking forward, our deep bench of experienced senior management and operational teams continue to implement strategies that are leading to new areas of growth, as demonstrated by the strong initial performance we are achieving in our recently entered iGaming markets.”

BRAGG has also gone through a recent executive change as Lara Falzon, an industry veteran with more than 10 years experience and a BRAGG board member since March, has taken over as the company’s new President and Chief Operating Officer.

“As demonstrated by the company’s progress and success with executing on its strategies and initiatives to deliver growing, positive financial performance — including a continued expansion into new markets and focus on offering high-performing internal and external iGaming content — Bragg has already established a platform to deliver consistent growth and the creation of shareholder value,” Falzon said in a February 2 press release.

The company recently provided an update on its impending acquisition of Spin Games, for which it received regulatory approval in December. Company management now indicates the closing is likely to come closer to the end of the first quarter of 2022 than the beginning, with the company adjusting its guidance accordingly.

“Recall that with the closing of the Spin acquisition, Bragg’s entry in the US market will be significantly accelerated, as Bragg can leverage existing licenses, relationships and distribution with US and International operators as well as cross-sell its US based content into Europe and vice versa,” Kadve said.

The updated results have prompted Kadve to revise his financial projections, increasing his year-end revenue target for 2021 from €55.7 million to €57.9 million, then following up with a jump to €69.9 million in 2022 (previously €60.4 million), suggesting a year-over-year increase of 20.7 per cent. From there, Kadve forecasts a jump to €85.2 million (previously €72.3 million) in 2023, implying a year-over-year increase of 21.9 per cent.

Kadve also projects the company’s EV/Sales multiple to drop from 1.8x in 2021 to 1.5x in 2022, then to 1.2x in 2023.

Meanwhile, the adjusted EBITDA revisions have Kadve projecting year-end adjusted EBITDA of €7 million for 2021 for a margin of 12 per cent. From there, Kadve forecasts an increase to €9.5 million (previously €6.8 million) in 2022 for an implied margin of 14 per cent before a boost to a 19 per cent margin and €15.9 million (previously €11.7 million) in adjusted EBITDA.

In terms of EV/EBITDA multiples, Kadve forecasts a drop from 15.1x in 2021 to 11.1x in 2022, then to 6.6x in 2023.

With his update, Kadve decreased his target price from $22/share to $16/share for a projected return of 84 per cent at the time of publication.

“While we remain confident in Bragg’s ability to execute on its key growth initiatives, overall multiple compression in the Gaming sector continues to weigh on share prices and thus the lower target price,” Kadve said.

Though BRAGG’s stock price has dropped by 63.7 per cent over the last 12 months, it has shown signs of life by yielding a 40 per cent return since the start of 2022.