Three betting and gaming stocks from Roth Capital

An economic slowdown may be on the minds of many but the gaming sector could stay strong longer than expected, according to Roth Capital analyst Edward Engel, who delivered an industry note to clients on Monday, saying lessons from Europe speak to resiliency in the gaming space.

Engel reviewed data on, among others, gross gaming revenue (GGR) in the UK, where the general economy has fared worse than in the United States, with third quarter retail sales down about five per cent year-over-year compared to a gain of 9.5 per cent in the US. Yet, GGR in UK betting shops from gaming tech company Inspired Entertainment was up 11 per cent compared to the pre-pandemic third quarter 2019, while sports betting and gaming company Entain’s retail footprint grew by eight per cent over the quarter.

More widely, Engel pointed to VLT GGR momentum in Greece and stability in retail gaming in Italy. Across the pond in the US, casino GGR was up 1.7 per cent year-over-year in the third quarter (up 1.4 per cent excluding the Las Vegas Strip), with Engel expecting a flattish October.

“Operators have acknowledged some softening demand from lower-end consumers; however, even U.S. distributed gaming GGR was +3.4 per cent year-over-year in 3Q,” Engel wrote. “Investors are generally expecting broader gaming demand to start declining sometime in 2023, but those expectations continue to get pushed back as GGR proves more resilient.”

“We expect gaming demand to be more correlated with employment than other economic factors, which would imply GGR declines are a very late cycle event. Alternatively, we also believe gaming demand can be more resilient than prior downturns, as long as structural tightness in labor markets persists,” he said.

Roth Capital has a “Buy” rating on Vancouver mobile game developer East Side Games (East Side Games Stock Quote, Charts, News, Analysts, Financials TSX:EAGR), with analyst Sean McGowan saying in a November 14 note that with its new focus on intellectual property-driven games, East Side Games is expected to deliver adjusted EBITDA growth in the coming years.

B2B online gaming platform and casino content aggregator Bragg Gaming (Bragg Gaming Stock Quote, Charts, News, Analysts, Financials NASDAQ:BRAG) also has a “Buy” rating with Roth Capital, with Engel saying in a November 11 report that Bragg looks to gain market share in the US in the upcoming 2023.

Engel also likes electronic gaming machine supplier PlayAGS (PlayAGS Stock Quote, Charts, News, Analysts, Financials NYSE:AGS), which got a maintained “Buy” rating in a November 9 update to clients. Engel said the share price should head upwards in connection with the company’s demonstrated operational momentum.

East Side Games

Roth Capital Rating: Buy
Target Price: $5.00

Projected one-year return at the time of publication: 400 per cent

Bragg Gaming

Roth Capital Rating: Buy
Target Price: $8.00

Projected one-year return: 154 per cent

PlayAGS

Roth Capital Rating: Buy
Target Price: $10.00

Projected one-year return: 96 per cent