EVOLUTION AB--Live Casino world leader

 EVOLUTION AB- Leader in Live Casino

This post is part of reporting on my international stocks, which I know less well than the domestic shares held, so will attempt to write on all of them. EVO is not a top-10 holding.

EVO is predominantly a B2B business with it clients being casinos, some of the largest in the world. the company creates games that are held in casino studios and either white labelled under the casino name or in EVOs name.

C19 saw the business accelerate in what is an established trend of casino customers wanting to play remotely.

EVO is a leader in live casinos and the business is built on a scale advantage from a network of studios around the world. Some are in low-cost countries that service many countries, due to regulation, others require studios built in the market, like the US which is more costly but a barrier. EVO other advantage, although potentially less enduring is game innovation with a huge portfolio and constantly enhanced.

Note no European casino has insourced the live element.

In 2020 EVO acquired a random number generator (slot play) for a large some US$2.1b. although profitability has improved it has proven a poor move, the market is much more competitive, Pragmatic is a strong competitor and Playtech is as well. ALL infringes in this market and with its casino relationship is a threat as well. RNG is about 15% of revenues, growing much more slowly than live casino.

Geographically, the company has a revenue split of Europe 39%, Asia 38% and NA 12%. Europe is growing but more mature, Asia is growing strongly, and NA has potential as more states open up to gaming. Risks here are the rate of US expansion, partly regulation-based, and also where the Asian revenues are coming from China?, and potential regulation of these markets. EVO has 60% of its revenues derived from unregulated markets. how these markets are regulated may be an issue over time.

Another risk is client concentration, the top 5 accounts for about 30% of revenues. We see here that several clients have engaged a wide suite of EVO products.

Tax is low and is expected to move higher as global tax is normalised. 6% to 14% assumed.

The balance sheet is very strong, net cash and both a buyback and dividends are paid.

KPIs are growth in headcount, tables, studios, EBITDA margin consistency, regulated share improvements and broad consistency in geographical growth.

The company has shown impressive operational leverage and that for the most part is expected to continue. Management has broadly executed well in live and is invested in the company.

At 1297e I assume 14% CAGR EPS growth and an exit multiple of 24X to give a stock return of 13%pa, not including dividends.

 Please note the disclaimer.



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