BRAG keeps “Buy” rating at Eight Capital despite soft quarter

Following a quarter that fell below expectations, Eight Capital analyst Adhir Kadve has nonetheless maintained his “Buy” rating on Bragg Gaming Group (Bragg Gaming Group Stock Quote, Chart, News, Analysts, Financials TSX:BRAG).

On March 26, BRAG reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted Adjusted EBITDA of £ 2.8-million on revenue of £ 23.4-million, a topline that was down 1.4% over the same period a year prior.

“Through Bragg’s strategic efforts to establish the business as a premier content-focused i-gaming B2B provider and our meticulous control over expenses, we achieved growth in revenue, gross profit and adjusted EBITDA in 2023, along with a 210-basis-point improvement in adjusted EBITDA margin to 16.3 per cent. Two thousand twenty-three revenue rose 10.4 per cent to 93.5 million euros ($100.5-million (U.S.)), gross profit increased by 10.8 per cent to 49.9 million euros ($53.7-million (U.S.)) and adjusted EBITDA increased by more than 26 per cent to 15.2 million euros ($16.3-million (U.S.)). These achievements are attributed, in part, to a reconfiguration of our revenue mix, favouring higher-margin products like internally developed proprietary content, and our comprehensive player account management (PAM) platform, all while maintaining stringent cost control measures.

The analyst, who said this was not a great quarter for BRAG, explained why he is still bullish on the stock.

“Bragg reported Q4/F23 results which came in below Consensus expectations, both on the top and bottom lines,” Kadve said. “F24 revenue guidance came in modestly below Consensus, while adj. EBITDA guidance came in meaningfully lower. Both the Q4 results and forward guidance were impacted by renegotiated terms with Betcity/Entain, from last quarter. The results, in our view, were secondary to the company announcing a Strategic Review including a potential sale of the company. In our view, Bragg has several characteristics of a solid acquisition target, including a motivated management team with significant ownership, a strong financial profile including profitability and cash flow generation. As such, when combined with the recent increase in M&A activity targeting B2B/B2C iGaming operators, we believe Bragg has chosen an opportune time to explore these initiatives, which certainly increases the likelihood of a deal being consummated, creating a potential near-to-midterm catalyst for the stock.”

In a research update to clients March 27, Kadve maintained his “Buy” rating and price target of 12.00 on the stock.

The analyst thinks BRAG will post Adjusted EBITDA of £ 15.4-million on revenue of £ 105.5-million in fiscal 2024. He expects those numbers will improve to £ 18.9-million on a topline of $121.1-million the following year.