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Stride Gaming PLC: DEEP DIVE

Stride Gaming has 10% of the online bingo market but it wants more

Stride is the fourth largest player in the UK online bingo market, but believes it can climb higher in 2017
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OVERVIEW: STR The Big Picture
Bingo! Following its acquisitions last summer, Stride now has 105 brands

Strong organic growth in 2016 coupled with a few acquisitions means Stride Gaming PLC (LON:STR) is now one of the largest online bingo operators in the UK with a 10% market share.

That puts Stride – which has 105 brands now – at number four in the list of online UK bingo operators but it believes it can take more of the market over the coming 12 months or so.

“Stride Gaming is well positioned to capitalise on the opportunities in the sector and to increase our market share through strong organic growth and selective acquisitions,” said chairman Nigel Payne.

The confidence comes on the back of a decent year of trading for the company that was in line with management expectations.

The “strong” performance of the real money gaming business more than offset slightly weaker-than-expected trading in the social gaming division.

As previously mentioned, much of that performance is down to “encouraging” organic growth, while the acquisitions of 8Ball, Netboost Media and Tarco last summer are also settling in well.

“Our focus in 2017 is on embedding these acquisitions into the enlarged group, maximising synergies and ensuring the underlying organic business remains robust,” Payne said.

Performance so far in 2017 has been strong in the core business, but a cloud hangs over the social gaming division, with its future under review after a slide in revenues. Despite this fly in the ointment, managment remains confident of meeting full-year expectations; when all is said and done, the social gaming arm is a bit of a sideshow, accounting for just 11% of revenues.

“The disappointing performance [of social gaming] is in part we believe as a result of changing dynamics in the social gaming markets, which are maturing and are leading to higher acquisition costs and lower lifetime values of players,” suggested chairman Nigel Payne.

The new kids

Stride doubled its market share with the acquisitions of certain Tarco Limited assets, Netboost Media Limited and 8Ball Games Limited last July.

While it ‘only’ has 10% of the overall market, the enlarged group’s 105 brands mean it has a quarter of the online UK bingo market by number of sites.

Like Stride, Tarco and 8Ball are both online bingo operators with 3% and 2% of the market respectively and also bring with them a combined 123,000 active players

Netboost is a slightly different proposition; it’s a marketing business that services the Tarco assets.

It shelled out up to £40.2mln for the Tarco assets and Netboost, and it bought 8Ball in a deal that could be worth up to £30mln.

The new businesses were funded in part by a share placing at 225p a pop which raised £27mln, with the remainder being satisfied by the issue of new shares and from Stride’s existing cash resources.

The acquisitions are expected to enhance earnings immediately, even before synergies kick in. Once the customary earn-out period passes, during which previous ownership is rewarded should the acquired businesses hit certain targets, Stride envisages achieving cost synergies of around £2.5mln and revenue synergies of around £3mln.

WATCH: CEO Eitan Boyd speaks to Proactive’s Andrew Scott

The taxman cometh

Stride sees as an opportunity what many of the UK market’s smaller brethren see as a massive impediment in the form of the point of consumption (POC) tax that has been introduced in the UK.

The tax is likely to put the squeeze on the marketing spend of the smaller operators, impairing the ability of these minnows to snare new customers.

Stride hopes to be able to continue spending sensibly on acquiring new players. In fact it hopes and expects the process to become much cheaper than it is today.

CEO Boyd reckons as much as 20% of the market will be up for grabs as a result of the POC levy.

Stride Gaming is also eyeing expansion opportunities in Europe

The company said it is actively examining rolling out its existing product into new regulated territories, particularly in Europe, where it sees significant growth opportunities.

“We are extremely pleased with the financial results from the first half [of fiscal 2017]. Our key focus for the second half is to maximise the potential of the Real Money Gaming vertical through strengthening our core business; integrating the acquisitions of 8ball, Netboost Media and Tarco assets; and increasing our market share of the UK bingo market,” said Eitan Boyd, chief executive officer of Stride.

“The second half will see the launch of the joint venture with Aspers and we will look to build our B2B vertical into a substantial revenue generating operation. We will also examine entry into other soft gaming verticals and territories,” he added.

A full-house with the brokers

“We believe that the recent acquisitions are transformational to Stride Gaming, catapulting the group into the number four player in the structurally attractive UK online bingo-led market,” said house broker Shore Capital.

“Through its scale, multi-brand strategy, proprietary platform and track record Stride appears uniquely positioned to exploit the favourable dynamics in bingo-led market; especially from further likely regulatory developments that will likely squeeze marketing budgets across the industry.

“We therefore see scope for Stride to increase its market share further, both organically and through corporate activity.”

Shore reckons Stride is on track to report underlying earnings of £20.4mln on revenues of £89mln in the 2017 financial year, rising to £21.2mln on revenues of £103mln in 2018.

The broker reckons the stock is worth 360p, which implies plenty of room for growth given its current price of 228p or so.

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Stride Gaming PLC Timeline

CN Research
December 04 2017
November 28 2016

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