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Bragg Gaming is a takeout target, says Haywood

Haywood Capital Markets analyst Gianluca Tucci likes the look of a new content development partnership announced by Bragg Gaming Group (Bragg Gaming Group Stock Quote, Charts, News, Analysts, Financials TSX:BRAG) with casino and online gaming heavyweight Bally’s. Tucci reviewed the deal in a Wednesday research note to clients, saying the deal with significantly widen Bragg’s reach and add to the company’s momentum heading into 2023.

Toronto-based Bragg Gaming is a B2B iGaming company with a casino content platform operating as a turnkey solution for retail, online and mobile iGaming. The company also owns US-based content development studio Wild Streak Gaming. Bragg announced on Wednesday that it has entered into an iGaming content development partnership with Bally’s Interactive, the digital arm of Bally’s Corp. 

The deal will involve Bally’s launching Bragg’s proprietary content on an exclusive basis via remote gaming server from a select number of Bally’s third party studios. Bragg said the partnership will add more of its content to key regulated markets such as the UK and the US. 

“By bringing proprietary content from our Atomic Slot Lab and Indigo Magic studios, as well as games from our exclusive third-party portfolio, to Bally’s Interactive online brands in different jurisdictions around the world, we are expanding the reach of our most popular games that also offer us our best economic returns,” said Bragg CEO Yaniv Sherman in a press release.

“In addition, with this partnership we are significantly growing our portfolio of high-quality, exclusive third-party titles which we expect will further strengthen our profile in key regulated markets,” he said.

Bragg has already made moves this year to expand its business through, in particular, the acquisition of Spin Games, a Nevada-based content provider in a US$30 million deal that gave Bragg a foothold in the US iGaming market.

Commenting on the Bally’s Interactive deal, Tucci said Bally’s has over 20 years of online and retail casino operating experience, a national database connecting customers across an omni-channel offering, with 17 casinos and resorts across 11 states. Bally’s has 500,000 retail customers and 750,000 monthly online players.

“Today’s announcement gives us added comfort in continued revenue growth and margin lift for BRAG. The path to higher margins is directly correlated with proprietary content sales (nine per cent of [Bragg’s] total revenue in the second quarter 2022,” Tucci said.

Tucci also pointed to Bragg’s busy second quarter, which included: the launch of 17 new online casino games with exclusive distribution rights, including eight from its proprietary studios, the addition of over 500 unique titles from third party studios, the furthering of Wild Streak’s collaboration with International Game Technology (IGT), expanded operations in the Netherlands with a new turnkey customer, the launch of content in the UK, Portugal and the Netherlands and content launched in Ontario with 888 and SkillOnNet.

“BRAG continues to expand its presence across its main geographies in Europe but has its eye on monetizing the lucrative North American opportunity,” Tucci said. “States which it has its near-term focus on (Michigan, New Jersey, Connecticut and Pennsylvania) are multi-billion dollar markets in aggregate.”

With a market capitalization of C$135 million, Bragg Gaming shares had a huge run-up over the back end of 2020 and into 2021, rising from C$5 to as high as C$30 by February, 2021. But the ensuing year-and-a-half have been mostly downhill for the stock, which has been trading back at the C$6-C$7 level for much of 2022. 

But Tucci is bullish on BRAG, reiterating in his report a “Buy” rating and C$15.00 target price, which at the time of publication represented a projected one-year return of 149.6 per cent.

On Bragg’s potential to be involved in future acquisitions, Tucci said the iGaming sector remains highly fragmented, and BRAG could very well be a takeout target.

“We believe M&A will be a theme to watch as valuations remain generally compressed and consolidation opportunities arise. We believe BRAG is trading at severely undervalued levels (1.0x 2023 EV/Revenue versus peers at 3.3x), making it a very attractive M&A target,” Tucci said.

By the numbers, Tucci is calling for Bragg Gaming to generate full 2022 revenue and adjusted EBITDA of €78.2 million and €10.9 million, respectively, and 2023 revenue EBITDA of €93.9 million and €15.6 million, respectively.

“We expect momentum to continue into 2023 and use today’s news as a prime example. We look for the company to reach a milestone in 2023, turning fully profitable on an after-tax basis. We believe this will serve as a revaluation opportunity given the current economic backdrop,” Tucci said.

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