Haywood Capital Markets put out its Gaming & Media Q1/23 Preview on Wednesday, saying iGaming and Sports Betting continue to represent expanding markets, while the online advertising sector is still dealing with its ups and downs.
Haywood analysts Gianluca Tucci and Neal Gilmer reported that channel checks and industry read-throughs continue to point to a hot North American iGaming and Sports Betting environment. Year-to-date, gross gaming revenue (GGR) was up 18 per cent year-over-year, according to the American Gaming Association, with iGaming revenue up 21 per cent and Sports Betting up a huge 68 per cent year-over-year.
That bodes well for companies such as Bragg Gaming Group (Bragg Gaming Group Stock Quote, Charts, News, Analysts, Financials TSX:BRAG) and Playmaker Capital (Playmaker Capital Stock Quote, Charts, News, Analysts, Financials TSXV:PMKR), the analysts said.
“Despite persistent concerns about the health of consumers, the US gaming industry generated record-breaking revenue for a second consecutive year in 2022, and we see this trend holding in 2023,” the analysts wrote.
“We continue to view names in the iGaming and sports betting verticals such as BRAG and PMKR as recession resilient in the face of a growing total addressable market and market tailwinds,” they said.
As for the Ad & Media macro view, the analysts said results have been mixed from recent companies’ financials, as industry headwinds and uncertainty connected to the broader economic environment persist, even as signs of stability are evident. The analysts pointed to YouTube, whose ad revenues declined in its Q1 for the third quarter in a row, and Snap, which also reported a 7.0 per cent drop in revenue due in large part to disrupted demand for ads. On the other side, they noted Meta Platform’s recent quarter, which saw a 4.1 per cent increase in ad revenue.
“Ceteris paribus, a mixed message from media’s Big 3 yields a continued cautionary outlook, however we are encouraged by the growth observed at Meta and do consider this datapoint to be a greenshoot,” Tucci and Gilmer said.
Company: Bragg Gaming Group
Haywood rating: Buy (Top Pick)
Haywood target: $15.00
Projected 12-month return: 236 per cent
On Bragg Gaming Group, which will deliver its first quarter earnings on May 10 before market open, the analysts are expecting robust margins and cash flow driven by industry tailwinds and continued, focused execution by the company.
They pointed out that BRAG has new content rollout plans in Michigan, New Jersey, Connecticut and Pennsylvania through Q2/23, with the path to higher revenues now moderately de-risked by BRAG’s existing penetration rate into Tier 1 operators such as FanDuel, DraftKings and BetMGM.
Tucci and Gilmer have forecasted Q1 revenue and adjusted EBITDA of €21.3 million and €3.5 million, respectively.
“BRAG is trading at 0.6x consensus 2023 EV/Rev and 4.0x consensus 2023 EV/EBITDA versus its B2B gaming technology peer average of 3.1x and 9.7x, respectively. We believe the current fundamental disconnect is the largest it has ever been in BRAG’s history,” Tucci and Gilmer said.
Company: East Side Games (East Side Games Stock Quote, Charts, News, Analysts, Financials TSXV:EAGR)
Haywood rating: Buy (Top Pick)
Haywood target: $3.25
Projected 12-month return: 364 per cent
Expected to report mid-month, mobile game developer East Side Games should be bringing in its second consecutive quarter with positive adjusted EBITDA and cash flow, according to Tucci and Gilmer.
The analysts said management has shifted the company’s focus to larger IP-driven titles, which while impacting revenue is nonetheless a prudent move. They are expecting Q1 revenue and adjusted EBITDA of $29.2 million and $1.8 million, respectively. (All figures in Canadian dollars except where noted otherwise.)
“The Q1 sequential growth will be driven by stronger seasonality as well as continued ramping of recently launched mobile games,” Tucci and Gilmer wrote.
Company: Enthusiast Gaming (Enthusiast Gaming Stock Quote, Charts, News, Analysts, Financials TSX:EGLX)
Haywood rating: Buy
Haywood target: $3.50
Projected 12-month return: 503 per cent
Tucci and Gilmer said they have a degree of caution regarding Enthusiast’s first quarter, arriving May 15 after market close, due to the mixed macro news from the ad and media sectors, along with seasonal softness from EGLX. At the same time, the analysts said they’ll be looking for the name to turn to positive EBITDA late in the second half of 2023.
The analysts are forecasting Q1 revenue and adjusted EBITDA of $43.0 million and $4.3 million, respectively.
“With the recent appointment of its new CEO, Nick Brien, we look forward to a refreshed and refocused company strategy,” they said.
Company: Playmaker Capital
Haywood rating: Buy
Haywood target: $1.20
Projected 12-month return: 155 per cent
Playmaker, which also reports its Q1 on May 15 after market close, should see its Wedge Traffic subsidiary fare well in the expanding online sports betting market in the US, according to Tucci and Gilmer. They have estimated Q1 revenue and EBITDA for PMKR at US$14.0 million and US$4.1 million, respectively.
“All said, we look for a healthy Q1/23 print from PMKR supplemented by a busy sports quarter,” they said.