Haywood raises its target on Playmaker Capital

Look for a strong fourth quarter from digital sports media company Playmaker Capital (Playmaker Capital Stock Quote, Charts, News, Analysts, Financials TSXV:PMKR), according to Haywood Capital Markets analyst Gianluca Tucci, who delivered a report on Tuesday to clients where he maintained a “Buy” rating on the stock but raised his target price from C$1.00 to C$1.10. Tucci said Playmaker is well-positioned at the intersection of traditional advertisers and iGaming companies.

Toronto-based Playmaker announced on Tuesday the acquisition of Glasgow, Scotland-based Wedge Traffic, an affiliate marketing business which uses a data-driven approach to deliver users to online sports betting (OSB) platforms like BetMGM and Fanduel. Playmaker is paying $31.2 million in cash and shares for Wedge.

“We have been very clear that creating a centre of excellence in affiliate was key to rounding out our offering as a leading sports media business,” said Jordan Gnat, Playmaker CEO, in a press release. “We look to super-serve all of our partners, and Wedge allows us to better serve critical customer segments, sports betting and iGaming operators.”

Playmaker is building a platform featuring premier sports media brands to support sports betting companies, leagues, teams and advertisers. The company generated $14.8 million in revenue in 2021 and $5.4 million in adjusted EBITDA. Meanwhile, Wedge generated $5.5 million in revenue and $3.1 million in EBITDA on a trailing 12 months basis. (All figures in US dollars except where noted otherwise.)

Playmaker said sports betting has seen rapid growth since the 2018 Professional and Amateur Sports Protection Act in the United States was passed, but widespread adoption is still in its early days, with over half of US states yet to regulate sports betting and iGaming.

“With the acquisition of Wedge, Playmaker is evolving from a pure digital sports media business to also becoming a leading affiliate for the newly regulating iGaming industry across the U.S. and Canada. Additionally, the expertise that Wedge brings to Playmaker will be leveraged for the newly regulating Latin American markets,” Playmaker said in a press release.

Looking at the deal, Tucci said Playmaker is diversifying its revenue and increasing its US market exposure through acquiring Wedge, while at the same time adding significant lift to its top and bottom lines. Playmaker’s 15th acquisition since April 2021, Tucci said owning Wedge enhances PMKR’s ability to meet “the rising demand for sports betting and casino content” and adds to the company’s already robust suite of digital media properties, ones which can now be cross-sold via Wedge for revenue synergies.

Tucci, who attended Playmaker’s inaugural investor day on Tuesday, said the meetings reaffirmed his bullish thesis on PMKR, and he wrote in his report on the rising importance of sports in entertainment and the value of the sports fan. Tucci quoted the Sports Business Journal which said sports accounted for 95 of the top 100 most-watched telecasts in the US in 2021, while eMarketer has said that by 2025, more than 25 per cent of Americans will watch live sports digitally.

“The sports fan experience today allows for more choices and more opportunities to digitally engage than ever before,” Tucci wrote, “allowing for many growth catalysts for PMKR. Today’s acquisition of Wedge Traffic adds further confidence to our thesis.”

Tucci said that if advertisers want to reach the more valuable avid sports fan as opposed to the casual, game-day fan, they’ll need to figure out how to get involved with live sporting events through companies like PMKR. Moreover, Tucci is of the opinion that sports media advertising will be a recession-resilient segment of the global ad market.

Playmaker shares climbed a little over seven per cent in trading on Wednesday to sit at a year-to-date return of almost negative 41 per cent. But Tucci sees upside to the name, with his C$1.10 target representing a projected one-year return of 156 per cent.

By the numbers, Tucci thinks Playmaker will hit 2022 net revenue of $30.3 million compared to $14.8 million in 2021 and adjusted EBITDA of $9.4 million compared to $5.4 million for 2021. For 2023, the analyst is calling for revenue of $37.4 million and EBITDA of $13.2 million.

The World Cup will be played between November 21 and December 18 in Qatar, making a likely outsized impact on Playmaker’s fourth quarter and 2022 revenue, Tucci said. He noted that in 2018, the World Cup saw companies boost global ad spend by $2.4 billion during the event, and projections are that the World Cup will account for about ten per cent of all the growth in ad dollars this year.

“We reiterate our Buy rating and increase our target price to C$1.10 from C$1.00. PMKR has established a solid track record of 15 acquisitions to date complemented by organci growth (ten per cent in Q2/22) which should accelerate. With the World Cup in Q4, we look for a catalyst rich end of the year and view the current valuation as attractive for a focused growth company,” Tucci said.