Playmaker Capital has a 155 per cent upside, says Echelon

Echelon Capital Markets analyst Rob Goff thinks Playmaker Capital (Playmaker Capital Quote, Chart, News, Analysts, Financials TSXV:PMKR) is ready to step up to the plate, giving the company a reiterated “Speculative Buy” rating and maintaining a $1.20/share target price for a projected return of 155.3 per cent in an update to clients on Thursday.

Originally a partnership with Relay Ventures, Toronto-based Playmaker Capital is a digital sports media company pursuing sports fan monetization by building a collection of sports media brands to connect sports fans with sports betting companies, leagues and advertisers. Goff’s analysis comes after Playmaker announced it had completed the acquisition of The Sports Drop, a sports media company focused on coverage of major professional and collegiate sports.

The Sports Drop has built up a formidable following since its inception in 2015, growing to serve an audience of over 30 million page views and over 200 million ad impressions, all while boasting over three million unique monthly users.

Though the company did not disclose financial terms of the transaction, which closed on April 8, Goff believes the deal works into Playmaker’s philosophy surrounding tuck-in acquisitions.

“We note that the acquisition fits the Company’s playbook seamlessly where the deal was not competitive, the founder was recruited into the Playmaker family, new centres of excellence were gained, pointing toward strong revenue synergy opportunities, and lastly, Playmaker inherited a new engaged audience from a key strategic geographical region,” Goff said.

On the deal, Playmaker CEO Jordan Gnat said, “Adding The Sports Drop to Playmaker’s portfolio aligns with our thematic growth strategy of acquiring brands that add new skill sets to our team and create new opportunities for our business. The Sports Drop’s following of highly engaged and attentive sports fans will complement our existing brands that have a U.S. presence including Yardbarker Media, Bolavip US, and Daily Faceoff.”

As part of the transaction, Mike Bellom, the former head of The Sports Drop, has joined Playmaker as its new Head of Paid Media, with Goff believing Playmaker is eager to benefit from Bellom’s expertise in affiliate and paid media while believing that can be leveraged to help drive revenue and cost synergies across Playmaker’s ecosystem of brands.

“I am extremely proud to be joining the Playmaker family,” Bellom said. “The Sports Drop is already one of the most visited sports sites in the U.S. and by combining forces with Playmaker, we will be able to invest more resources in the creation and distribution of high-quality content that our loyal community of sports fans deserve.”

Goff believes The Sports Drop to be a profitable business with slightly lower margins than Playmaker presents, but without concrete data surrounding the transaction, he has decided to maintain his financial projections ahead of a first quarter results release on May 16.

After ending 2021 with $14.8 million in revenue, Goff maintained his 2022 projection of $28.8 million, forecasting a near double with a projected year-over-year increase of 94.6 per cent. Looking ahead to 2023, Goff forecasts revenue of $34.5 million, producing a more modest potential year-over-year increase of 19.8 per cent.

From a valuation perspective, Goff projects the company’s EV/Revenue multiple to drop from the reported 6.4x in 2021 to a projected 3.3x in 2022, then to 2.7x in 2023, which comes in ahead of the target of 6.3x, but is still slightly behind the projected peer group average of 1.6x.

Meanwhile, Goff maintained his 2022 adjusted EBITDA forecast of $10.1 million for an implied margin of 35.1 per cent. His 2023 forecast also held firm at $12 million, implying a margin of 34.8 per cent.

In terms of valuation, Goff forecasts the company’s EV/adjusted EBITDA multiple to drop from the reported 17.4x in 2021 to a projected 9.4x in 2022, then to a projected 7.9x in 2023, which would come in ahead of the projected target of 18.1x and the projected peer group average of 17.7x.

Overall, Goff believes the transaction will be beneficial to Playmaker as it works to create meaningful revenue synergies with its existing North American assets.

“Playmaker continues to actively fill out its growing roster of capabilities and expertise, both on the property side and within its leadership team,” Goff said. “We’ve heard Playmaker talk recently about wanting to beef up its paid media proficiencies in order to generate higher traffic and ultimately monetize that traffic at higher levels on enhanced content – we’ve touted the Company’s monetization engine Playmaker Bench as best-in-class and thus have little doubts on the conversion of that traffic once it lands within Playmaker’s ecosystem.”

Playmaker Capital has seen its stock price drop off by 36.1 per cent since the start of 2022.