If you have been watching TV the last 2 years you know that almost all commercials are from different casino/gambling companies. Even though this in a competitive industry, most of the companies seems to be growing. The last year LeoVegas increased their revenue by 73 % and the EBIT increased more than 29 times. When hearing this, you might think that this company is going to be valued way over 50 in P/E-ratio. The reality is that LeoVegas is just valued a bit over a P/E-ratio of 30 for 2016, looking at estimated earnings of 2017 the P/E-ratio goes as low as 16.6. This thanks to their high earnings growth (Look in the table). Even though this competitive gambling market and the amount of commercial, LeoVegas still showed in Q4 that their marketing campaign is able to scale very well. The marketing expenses grew with just 13 %, but deposits from new costumers grew with 83 % Y-Y. The more efficient marketing campaign makes so that Costumer Acquisition Cost decreased with 38 % compared with last year.
The future of LeoVegas
LeoVegas own financial goal is to have a revenue of 300 million Euro in 2018 and an EBITDA margin of 15 %. To reach this target they need to grow with 46 % annually. The CEO of LeoVegas, Gustaf Hagman, said that LeoVegas in January had a Y-Y revenue growth of 40 %, which was less than LeoVegas wanted to. Hagman also said that due to the new legislation in Czech Republic, they needed to stop their business and are currently waiting to get a license. 4 % of their revenues comes from Czech Republic.
LeoVegas launched both Casino and Live Casino in the Danish market in Q1, 2017. The company sees continued strong demand for gaming services and believes that the opportunities for continued expansion in new markets are very favorable. LeoVegas also got the cash to cover many further expansions. The past quarter LeoVegas had a cash position of more than 55 million. The big cash position and the eager to grow made LeoVegas make their first M&A ever, by acquiring Winga.it, for 6.1 million Euro. 6.1 million Euro is not much by taking to account that LeoVegas in the Q4 had a growth in cash position by 11.9 million Euros. I think that “Winga.it” is a very good acquisition, just like the Italian gambling market is huge and the market are regulated by the authorities. Most of the Italian gambling market are traditional gambling, and not online/mobile gambling. As in many other countries, LeoVegas expects that the market shares of online- and mobile gaming to growth. Hagman also said that they have been looking on dozens of possible acquisitions. I think that it is very possible to see more acquisitions, both in short- and long term. To meet their target of 300 million Euro in 2018, they need to grow their revenue with 43 % annually. Therefor I think that acquisitions is going to be needed. In January LeoVegas grew their revenue with 40 % in revenue and that is without any sales from Czech Republic.
Authentic Gaming is a new daughter company within LeoVegas. Authentic Gaming is a business to business provider of live casino solution, like Evolution gaming. In the beginning of 2017 some of the more well-known operators started to use Authentic Gaming. This have led to that LeoVegas now are focusing on deliver this solution to more operators. If Authentic Gaming is going to be a success, we might see this as a potential spin-off from LeoVegas, like Betsson’s spinoff NetEnt. Worth adding is that this will take a while
Worries – Taxes, quarter to quarter.
As many of you know the gambling industry have some political difficulties. Many people think that the industry should be more regulated. It has been discussions about regulating the Swedish gambling industry, but nothing has happened. Right now, the sales of LeoVegas consist of, 57 % Nordic countries, 10 % UK, 17 % rest of Europe and 16 % rest of the world. Sweden is expected to have a new gambling regulation in Q3 2018- how this regulation is going to look is still unclear. From what I think, this market is always going to have some political issues. LeoVegas long term financial goals includes the political risk. Long term goal is to have an 15 % EBITDA and all business on a regulated market.
If LeoVegas are able to meet their own financial goal it is looks like a very promising trip for the InWesters. With a P/E-ratio of 16.6 for 2017 and with a PEG of 0.38, this is really not considered expensive. LeoVegas has much to live up to, but if they succeed, we are going to see a new rising star in the industry of all this annoying commercials.
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