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18th of January 2018

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Mr Green: A new addition to the Group

2017-12-19 16:35, Edited at: 2017-12-19 16:52

Yesterday after the markets closed, Mr Green announced the acquisition of Evoke Gaming from Bonnier Growth Media. The acquired company owns Online Gambling brands like; Redbet, Vinnarum casino, Bertil, and MamaMia. The purchase seems relatively cheap if we assume a continued turn-around of the business and profitability in-line with the overall industry. However, we need more information and a better understanding of the possible future development of the Evoke Gaming’s business. As of today, the acquisition will have a neutral impact on our valuation.

The acquisition price amounts to EUR 7m and will be paid in cash. An additional purchase price of EUR 1.5m may also be payable based on certain conditions. Mr Green does not expect that the acquisition will affect the company’s EBITDA during 2018. Management believes that the purchase will positively impact both the EBITDA and cash flow 2019 and onwards. Mr Green expects to achieve synergies of EUR 2.5-3.5m per year with full effect from 2019.

Evoke Gaming seems to fit very well into Mr Greens business plan and strategy. The company sees a significant potential with two strong global brands. Redbet today generates a substantial part of their revenues in the UK and Sweden but is aimed to be launched on Mr Green’s other existing and future markets the coming years. An increased international presence could boost the growth levels significantly for the brand in the coming years. We find it positive that Fredrik Staël von Holstein will remain in charge of Evoke Gaming after the transaction has been completed and that he will also join Mr Green Ltd's management team in Malta.

Financials and multiples

During 2016 Evoke Gaming's net sales amounted to EUR 15.5m with a negative EBITDA of EUR -4.6m. In the first nine months of 2017, revenues amounted to EUR 7.4 million and EBITDA to EUR -4.4 million. During 2017, revenues and earnings have been adversely affected by the migration into a new technology platform based on NYX. Evoke Gaming currently has 82 employees. When looking at the acquisition multiples, we assume that Evoke will produce net sales of SEK 10.5m during 2017 with a healthy growth the coming years. Further, we believe that the company should be able to reach a sustainable EBITDA margin in the region of at least 15%. Mr Green's Group target is a margin of 20%, so using 15% is in our view relatively conservative and likely below the company's internal targets. 

Based on the assumption of a sustainable margin of 15% we find that Mr Green is paying between 4.4x-5.4x 2017E EBITDA, which in general seems like a low price. This, however, is based on the assumption that there will be a turn-around from the current depressed profitability levels; otherwise Mr Green has only purchased a boost in sales with no earnings.

We find that given the insight we have as of today, the acquisition will have a neutral impact on our valuation. There are of course synergies and the possibilities to enhance the market presences of Redbet through Mr Green’s market channels and likely some cost savings to be found on the admin side. We usually do prefer for companies to focus less on possible future synergies in acquisitions as our experience suggests that these types of purchases most often take more energy and longer time than anticipated compared to acquirements of business where there are no “clean-up” needed. However Mr Green seems confident that they can continue to improve Evoke’s business in the same fashion they have turned-around their own in the last few years.

Our valuation suggests a significant upside from today’s share price levels, and we value Mr Green, in our base-case, at 73 SEK per share. As we stated earlier; as of today, we will not make any adjustments to our valuation following the acquisition. 

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