You can download our 15-page Company Q2/2019 Financials Update Report by clicking on the following link: 2019-09-03 NWGI-UR-Q219-FINAL
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eResearch is pleased to publish an update Equity Research Report on Newgioco Group, Inc. (OTCQB: NWGI) pertaining to NWGI’s Q2/2019 financials.
We are maintaining our “Buy” recommendation but reducing our 1-year price target to $1.25 from $1.30.
RECENT EVENTS & UPCOMING CATALYSTS:
- Newgioco released its Q2/2019 Financial results with Gambling Turnover up 24% Y/Y, resulting in Revenue increasing 3.2%. Newgioco reported Q2/2019 revenue of $9.1M, lower than our estimate of $10.1M, EBITDA of $1.8M, higher than our estimate of $0.9M, and EPS of -$0.02, lower than our estimate of $0.00/share. (See Figure 1: 2018 and H1/2019 Actuals versus Q2/2019 Estimates on Page 2.)
- Newgioco reported a 3.2% Y/Y increase in Q2/2019 revenue versus a 7.8% Y/Y increase in Q1/2019. Newgioco’s revenue growth continued to be driven by an increase in Web-based betting Turnover but was negatively impacted in this quarter by lower Land-based betting Turnover. Due to cost-cutting in the quarter, Newgioco reported better-than-expected EBITDA. Continued Operating Losses does not give NWGI the flexibility to utilize Cash Flow from Operations to pay down its debt with Convertible Debt and Acquisition Loans due over next year.
- Waiting on U.S. expansion revenue and NASDAQ listing. Large opportunity still exists within the U.S. sports betting market, but NWGI has not made any announcements beyond Montana. Up-listing Newgioco to the NASDAQ exchange, to attract long-term institutional investment, is still expected by the end of 2019.
- Board of Directors appointment of gaming industry veteran should help with the global expansion strategy. Richard Copper served previously as a Director at Sportech (LSE:SPO), a leader in pari-mutuel pools betting, and he was also the Group Finance Director at sports betting and gaming company GVC Holdings (LSE:GVC).
FINANCIAL ANALYSIS & VALUATION:
- Due to lower Q2/2019 revenues than we modelled and additional seasonality adjustments, we have reduced our revenue growth estimate for 2019 to 12% from 25% with EBITDA margins remaining at 7%. We have reduced our revenue estimate in 2019 to $38.7M, down from our previous estimate of $43.3M.
- Based on our analysis, Newgioco trades at EV/Revenue of 0.8x for 2019 and 0.6x for 2020. This is well below the peer group range of 2.2x-2.3x for 2019 and 1.4x-1.9x for 2020. Our DCF model with a 10% WACC and a six-year terminal multiple of 9x EBITDA, yields a value of $2.12, well above the current price of $0.31
- We are maintaining a “Buy” Rating, but reducing our One-year Target Price to $1.25 from $1.30.
You can download our 15-page Company Q2/2019 Financials Update Report by clicking on the following link: 2019-09-03 NWGI-UR-Q219-FINAL
