EGLX has price target slashed at Haywood

Following the company’s first quarter results, Haywood analyst Gianluca Tucci has cut his price target on Enthusiast Gaming (Enthusiast Gaming Stock Quote, Chart, News, Analysts, Financials TSX:EGLX).

On May 15, EGLX reported its Q1, 2024 results. The company posted an Adjusted EBITDA loss of $1.8-million on revenue of $23.3-million, down from $42.9-million year-over-year.

“The cornerstone of Enthusiast Gaming has always been, and remains, the strength of its owned and operated assets,” said interim CEO Adrian Montgomery. “Assets like TheSimsResource, U.GG, Icy-Veins, PocketGamer, Luminosity Gaming, NFL Tuesday Night Gaming, and our many other assets and properties that boast large, coveted and highly engaged gaming audiences. During and subsequent to the first quarter, the team has been hard at work, delivering much-needed focus, stability and excitement to the business, including streamlining the company’s cost structure, executing significant product advancements across our asset portfolio, expanding our key strategic partnerships, including the signing of a new sports league, and the divestment of certain non-core, non-profitable legacy assets, bolstering the company’s balance sheet. On the back of all of these changes we have reported our best quarterly adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] in company history, in our seasonally slowest quarter of the year, and having only initiated our cost savings program in March of this year. These results indicate a clear path to scalable and sustainable profitability in 2024, positioning us for a return to growth.”

The analyst reviewed the quarter.

“EGLX reported Q1/24 which highlighted its new focus of not pursuing low/no margin business with the benefits from the Company’s $10M cost reduction program to be observed in Q2,” he wrote. “EGLX has pivoted its focus to profitable revenue generation, gross margin expansion, and rightsizing its cost structure. We are encouraged by the early actions and anticipate for more to come in EGLX’s pursuit of strengthening its balance sheet and positioning for growth. Q1 marked its best Adj. EBITDA quarter ever. On its conference call, EGLX disclosed it has signed a strategic partnership with the NHL in a multi-year partnership to launch with the 2024/2025 season – we expect a formal announcement in the near-term. Also disclosed is that NFL TNG returns for season 3. We modestly lower our near-term expectations as the Company works through a reorg with limited financial resources available. While we continue to view the Company’s assets as undervalued and remain constructive longer-term, we acknowledge the continued near-term overhang associated with recent Company decisions and balance sheet uncertainty. Despite lowering revenue estimates at higher margins, we maintain our BUY rating acknowledging the inherent strategic value of EGLX’s gaming properties and KPI stability. We see potential for a positive reversal on any positive catalysts that support our Buy rating. We continue to model a $10M equity injection this year and note that EGLX is in breach of a covenant and has not yet received a waiver – the Company continues to explore avenues to shore its balance sheet and we reflect this in our WACC assumption while continuing to view its assets as undervalued. Mgmt expresses confidence that a waiver will be received from its lender.

In a research update to clients May 17, Tucci maintained his “Buy” rating but lowered his price target on EGLX from $0.50 to $0.35.

The analyst thinks the company will post Adjusted EBITDA of negative $1.3-million on revenue of $100.5-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of positive $5.0-million on a topline of $110.5-million in fiscal 2025.

“Our $0.35 DCF-based price target implies a 0.8x EV/Revenue multiple on our 2024 estimates,” Tucci added. “EGLX is currently trading at 0.5x EV/Revenue on our 2024 estimates, versus its Advertising & Marketing peer median at 1.7x and its Gaming Publisher/Developer peer median of 3.3x.”