Bragg Gaming is our Top Pick, says Haywood

Haywood Capital Markets analyst Gianluca Tucci delivered an update to clients on Thursday on Canadian B2B gaming technology company Bragg Gaming Group (Bragg Gaming Stock Quote, Charts, News, Analysts, Financials TSX:BRAG), saying Bragg is well-positioned to continue capturing market share while also expanding its business with existing clients. Tucci reiterated a “Buy” rating on Bragg as well as a Top Pick designation for the stock.

Toronto-based Bragg Gaming, an online gaming platform and casino content aggregator, has seen its share price drop over the past couple of years, going from a high of about $30 in early 2021 to now just under $5.00, with a year-to-date return of about negative 22 per cent. But Tucci sees upside from here, saying there’s a material valuation gap between Bragg and its industry peers.

Tucci said BRAG is currently trading at 0.6x 2023 consensus EV/Revenue compared to its peer group at 3.1x, leaving the stock “severely undervalued” for a growing company with no need of extra capital to fund operations.

Tucci said at its present valuation, Bragg Gaming presents as a very attractive takeout target, pointing to consolidators in the B2B iGaming world such as Evolution, Aistocrat, Light & Wonder and IGT, who have collectively deployed billions of dollars in M&A over the years.

“We remind readers that precedent B2B iGaming M&A transactions have seen average takeout multiples in the ~3x+ EV/Revenue multiple range which would value BRAG north of our 12-month target price,” Tucci wrote. “The company recently reported a record Q3 and introduced 2023 guidance, which in our view leaves room for upside.”

On the third quarter, delivered earlier this month, Bragg reported revenue of €20.9 million against Tucci’s call at €17.1 million and adjusted EBITDA at €2.2 million compared to Tucci’s forecast also at €2.2 million.

Tucci added that the United States represents a big addressable market for Bragg Gaming, with total online gambling valued at US$9.5 billion in 2021. Tucci said Brag has new content rollout plans for the states Michigan, New Jersey, Connecticut and Pennsylvania over the first half of 2023, with management indicating that its timeline could be accelerated. 

“In our view, the path to higher revenues is moderately de-risked by Bragg’s existing penetration rate into Tier 1s, allowing for a relatively unobstructed way to scale,” Tucci wrote. “We remind readers that market share in legalized gaming states is largely dominated by Tier 1 operators (FanDuel, DraftKings, BetMGM, Penn, Caesars, etc.) who are BRAG customers.”

By the numbers, Tucci is expecting Bragg to generate full 2022 revenue and adjusted EBITDA of €80.0 million and €10.6 million, respectively, and 2023 revenue and adjusted EBITDA of €89.9 million and €13.3 million, respectively. With his “Buy” rating, Tucci maintained a C$14.00 target price, which at press time represented a projected one-year return of 216 per cent.