eResearch is pleased to publish our initial report on Newgioco Group, Inc. (OTCQB: NWGI).
We are Initiating Coverage on Newgioco with a 1-year price target of $1.30.
Company Summary:
Newgioco is a vertically integrated organization engaged in the leisure gaming (gambling) industry, primarily in Italy but currently expanding worldwide.
Newgioco generates revenues from providing retail land-based and web-based gambling products and services in regulated countries and offers solutions for both the Business-to-Business (B2B) and Business-to-Consumers (B2C) markets. Newgioco’s forecasted double-digit growth over the next year, in the Italian retail gaming market, could be accelerated with tactical acquisitions. Over the next several years, Newgioco is poised to capture some of the recently deregulated, multibillion-dollar, U.S. sports betting market through the Company’s proprietary betting platform (ELYS™).
Investment Highlights include:
- Newgioco is a well-established, licensed, retail operator of land-based and web-based gambling services in Italy with year-over-year revenue growth forecasted in the 25-35% range. The Company expects to reach over $500 million of betting turnover (Handle) in 2019, a +20% year-over-year increase. Management plans to strengthen its position in the Italian market by focusing on regional expansion, and new products and services.
- The fragmented Italian market is ripe for consolidation and acquisitions could fuel additional revenue growth. With a growing cash balance from continuing positive cash flows, Newgioco is in the enviable position to blend organic growth with some tactical acquisitions.
- First tribal casino operator deal signed to deploy Newgioco’s ELYS™ sports betting platform, illustrates Newgioco’s vast opportunity in the U.S. market. The U.S. Supreme Court’s repeal of the Professional and Amateur Sports Protection Act (PASPA) in 2018 provides a significant new market opportunity for Newgioco’s sports betting platform. Revenue recognition of these
opportunities will only crystallize once the individual states pass legislation to allow legalized sports betting. - Recent acquisition of Virtual Generation opens the door for global expansion. Currently operating in 12 countries, Virtual Generation’s country footprint allows for cross selling the Sports Betting platform (ELYS™) and other online games.
Financial Analysis:
We believe that Newgioco is undervalued in the market and its trading at a discount to peers. Based on our analysis, Newgioco trades at EV/Revenue of 1.0x for 2019 and 0.8x for 2020. This is well below the peer group range of 1.6x-3.3x for 2019 and 1.7x-2.9x for 2020. Our DCF model with a 10% WACC and a six-year terminal multiple of 9x EBITDA, yields a value of $2.07, well above the current price of $0.46. We are Initiating Coverage on Newgioco with a (blended) 1-year price target of $1.30 and represents a 37% discount to the 1-year DCF net asset value of $2.07.
You can download our full report by clicking on the following link: 2019-05-15 eResearch-NWGI-IR-FINAL
