Playmaker Capital is a Buy, says Eight Capital

The table is set for a strong second half from digital sports media company Playmaker Capital (Playmaker Capital Stock Quote, Charts, News, Analysts, Financials TSXV:PMKR). That’s according to Eight Capital analyst Adhir Kadve, who reviewed the company’s second quarter 2022 results in a client update on Wednesday. Kadve said there’s upside to the stock from here as Playmaker continues to see strong organic growth.

Toronto-headquartered Playmaker has a strategy of acquiring sports media brands and tech assets in aid of growing its fan base across social media channels. Founded in 2020, the company now has over a dozen acquisitions under its belt, including recent pickup JuanFutbol, a soccer-focused digital sports media network with fan bases in the Mexican and US Hispanic markets and more than six million social media followers across Facebook, Instagram, Twitter, TikTok and YouTube.

Playmaker reported Q2 earnings on Monday, showing revenue of $7.0 million (pro forma revenue was $7.4 million) compared to $3.0 million a year earlier. The company’s net loss was $1.1 million compared to $1.1 million a for the second quarter 2021. (All figures in US dollars except where noted otherwise.)

“Q2 was a very productive quarter for us as we continued to invest in the foundation of our business, integrating recently acquired companies, and developing operational efficiencies and centres of excellence,” said CEO Jordan Gnat in a press release. 

“We completed two acquisitions subsequent to the quarter end with the key efforts on diligence and operational integration happening prior to closing the transactions. We launched new products with BarkBets and The 90th Minute and our new affiliate partnership with oddschecker,” he said.

The $7.0 million topline was ahead of the analyst consensus call at $6.5 million as well as Kadve’s at $6.6 million, while the company’s Q2 adjusted EBITDA of $1.8 million was in-line with the Street and Kadve’s similar $1.8 million estimates.

Looking at the numbers, Kadve said PMKR’s year-over-year organic growth rate on revenue of ten per cent was low compared to the previous quarter at 37 per cent but that the comparison was a tough one as both the NHL and NBA had off-cycle playoffs occurring in the second quarter last year. 

Kadve said the broader ad spending environment continues to be uncertain, while new customers are being created in places like Peru which is now regulating sports betting, thus leading to new sources of advertising dollars.

On Playmaker’s M&A front, Kadve commented that a more favourable market is now emerging, with private market valuations beginning to reflect the compression that has occurred in the public markets.

“With a strengthened balance sheet (we estimate ~$30 million in capital), management has become more aggressive in M&A conversations. We expect that Playmaker will be looking for larger acquisitions to increase their footprint in the US while also looking to add capabilities to increase affiliate revenues,” Kadve wrote.

Overall, Kadve said he came away from the quarterly results with his thesis on PMKR still intact. 

“We continue to see a catalyst rich outlook for Playmaker heading into H2 including: an increase in ad spending from the return of the sporting calendar in Q3, a strong anticipated Q4 given incremental ad spending associated with the FIFA World Cup, ongoing legalization of sports betting across North and South America and the company’s well-defined M&A strategy,” he said.

With the update, Kadve reiterated a “Buy” rating on Playmaker and C$0.90 target price, which at the time of his report’s publication represented a projected one-year return of 84 per cent. With a market capitalization of about $120 million, PMKR is currently down about 34 per cent year-to-date.

On valuation, Kadve said Playmaker currently trades at 2.5x 2023 EV/Sales, which is roughly in line with it Publishing/Digital media platform peers, although Kadve sees a higher growth rate expected from PMKR.

“We believe valuation upside exists as the company successfully executes on its well- defined M&A strategy and displays organic growth of acquired assets,” he said.