Playmaker Capital scores a Buy rating with Eight Capital

A catalyst rich stock and a company with tons of growth ahead of it — that’s how Eight Capital analyst Adhir Kadve describes Canadian digital sports media company Playmaker Capital (Playmaker Capital Stock Quote, Charts, News, Analysts, Financials TSXV:PMKR). Eight Capital launched coverage of Playmaker on Monday with a “Buy” rating, saying Playmaker is poised to capture a larger chunk of the global advertising spend in the online sports market.

“We see a catalyst rich outlook for sports-related ad spending which will benefit Playmaker heading into H2, including the upcoming 2022 FIFA World Cup to be held in Qatar between November 21 and December 18, 2022,” Kadve wrote in his initiation report. “We also see the ongoing legalization of sports betting across North and South America providing continued catalysts which lead to increasing advertising spending in order to both acquire and engage sports fans.”

Founded in 2020 by Jordan Gnat who is currently the CEO, Playmaker has an M&A strategy of acquiring digital sports media and technology assets with the aim of growing its portfolio of content, distribution and revenue channels by expanding its fan base across a range of social channels. 

Playmaker has so far completed 12 acquisitions, including Futbol Sites Network for $35 million, the company’s first acquisition completed in April, 2021, which set up Playmaker with a platform to grow its presence in the Latin American market and gave it the tech base to add to its stack. Other major purchases include YB Media, bought for $24 million in August, 2021, and Canadian company the Nation Network, bought in November, 2021, for $12 million. All told including tuck-in acquisitions, the company has spent $87.5 million on M&A to date. (All figures in US dollars except where noted otherwise.)

Earlier this month, Playmaker announced the acquisition of World Soccer Talk for $1.15 million, a company with an audience across online channels and podcasts with a focus on the Latin American and US Hispanic markets.

“Soccer is on the rise in the US and Canada, and Playmaker is focused on becoming the preeminent voice for the sport across the Americas, from the top of Canada to the bottom of Argentina,” said Gnat in a July 5 press release. “World Soccer Talk Founder Christopher Harris exudes a true passion for sport that’s shared by the entire Playmaker team, and we’re excited to welcome him and World Soccer Talk into our family and our ecosystem as a core piece of a broader soccer strategy in advance of World Cups 2022, 2023 and 2026.”

Kadve called Playmaker’s approach a well-defined M&A strategy and said its focus on the digital audio market and affiliate revenue is astute as digital audio currently represents the highest growth area in digital ad spending, while affiliate revenue, where management aims to increase its exposure, represents low-hanging fruit in the sports media sector, according to Kadve.

Plus, Kadve says the current market looks ripe for acquirers like Playmaker. 

“Given its strong balance sheet, we believe that Playmaker can pursue larger acquisitions (similar in size to Yardbarker) and with the private markets showing signs of valuation compression, we see management being much more opportunistic. Historically, Playmaker has paid 2.5-5.0x forward Sales and between 6.0-14.0 x forward EBITDA for acquisitions (including earnouts). However, given previously noted valuation compression, we think management will likely look to pay between 1.0-2.5x Sales and 3.0-7.0x forward EBITDA for acquisitions,” Kadve wrote.

Also earlier this month, Playmaker announced a credit agreement for a convertible loan facility with Beedie Capital for up to $20 million to advance its M&A program. The four-year term agreement involves a fixed rate of nine per cent per annum and 1.25 per cent annually on standby funds and give Beedie Capital the opportunity to convert the principal amount of the loan ($15 million) into Playmaker shares at $0.70 per share, which at the time represented a 77 per cent premium to the share price as of July 11 and would represent about 28.6 million shares or about 13 per cent of shares outstanding.

As for Playmaker’s structure, Kadve remarked that there’s strong insider ownership and a solid management team with backgrounds in sports betting, M&A and knowledge of the LatAm market. Insider ownership includes 13 per cent by Gnat, four per cent by EVP Federico Grinberg and 16 per cent by Relay Ventures.

On valuation, Kadve estimates PMKR to be currently trading at 2.1x 20223 EV/Sales, which is roughly in line with stocks in the Publishing and Digital Media Platforms space, despite higher expected growth rates for Playmaker, Kadve says. 

With his “Buy” rating, Kadve has set a $0.90 per share target price, which at the time of publication represented a projected one-year return of 114 per cent. 

“We believe valuation upside exists as the company successfully executes on its well- defined M&A strategy and displays organic growth of acquired assets. Our $0.90/share is based on 4.5x F23E EV/Sales,” Kadve wrote.

Kadve is calling for Playmaker to generate full 2022 revenue of $28.6 million compared to $14.8 million for 2021 and rising to $34.0 million for 2023. On earnings, he is expecting adjusted EBITDA of $7.7 million in 2022 versus $5.4 million last year and then rising to $10.3 million in 2023.