Tax Inspector
27 Feb 2015
Simon Thompson - IC Here's ST's update in yesterday's IC:32Red cleans upAim-traded shares in online gaming company 32Red (TTR: 60p) have regained territory above my recommended buy in price of 51.75p (‘Game on’, 7 July 2013), but it has been an incredibly volatile ride to say the least as the sector was sold down heavily last year on concerns over the introduction of a point of consumption tax.However, an upbeat trading statement from the company in late January indicated that the business is adapting to the new regulatory regime far better than many had anticipated. In fact, in the first 22 days of the new financial year revenues had raced ahead by 31 per cent on the corresponding period in 2014. True, analyst Ivor Jones at broking house Numis Securities rightly points out that “it’s too early to conclude that the new regime is favouring 32Red as it may be that the company is mopping up the market share left by companies which chose not to get licensed in the UK”. However, it’s also worth noting that 32Red’s chief executive Ed Ware believes that “our marketing and operations have never been in better shape”. He has a point as a drill down through the revenue figures for last year shows that the company posted 33 per cent growth in the second half of 2014, and clearly this strong momentum has continued into the new fiscal year.A focus on gaming on mobile devices is critical to maintaining this growth as this segment now accounts for a third of all casino revenues, up from only a fifth at the end of 2013. Strict cost control is important too, something that 32Red is keeping an eye on. For instance, active gaming players shot up 15 per cent to over 82,000 over the course of 2014, but the added cost per acquisition of the new players was covered by the corresponding increase in gaming yield per customer.Of course, the new tax regime will have an impact which is why Numis forecasts pre-tax profits of £4.7m on revenues of £34.8m in 2015 compared to profits of £5.5m on revenue of £32.1m in fiscal 2014. On this basis, expect adjusted EPS of 5.9p this year, down from 7p forecast in 2014. Still, this only means that the shares are priced on a modest 10 times likely earnings for this year, and on only 8.5 times once you strip out net cash worth 8p a share. Moreover, with cash generation strong, expect a dividend of 2.2p to be declared in next week’s full-year results on Thursday, 5 March. Mr Jones at Numis predicts a payout of 2.5p this year, implying a prospective yield in excess of 4 per cent.So with the trading outlook much improved, and investor caution toward gaming companies overdone prior to the implementation of the new tax regime, then I see the bounce back in 32Red’s share price from last autumn’s lows continuing in the months ahead. Trading on a bid-offer spread of 59p to 60p, slightly above the price when I last updated the investment case (‘Gamble on recovery’, 25 September 2014), I rate 32Red’s shares a buy and have a six month target price range of 75p to 80p.DYOR
Go Dink
16 Feb 2015
888 & WH end talks... ...talks end as they couldn't agree terms for discussion - may mean 888 holding out for higher offer?TTR rising - could be a target for t/o, but producing good results anyway.
r21442
12 Feb 2015
A tip of the week in IC Friday 13th Bull points•Net cash•Competitors withdrawing from market•Strong sales growth•Good dividend yieldBear points•New regulatory regime•General electionThe introduction of the new point-of-consumption (PoC) gambling tax in the UK weighed on the share prices of several gambling companies last year, not least 32Red (TTR). However, while the new 15 per cent levy on profits is likely to dampen 32Red's earnings this year, the withdrawal from the UK of rivals that have not signed up to the new licence-based regime could prove a boost to 32Red's longer-term revenue growth prospects. That means strong earnings growth should re-establish itself after 2015's knock, leaving the shares' current rating of just eight times forecast 2015 EPS looking far too low. While it is early days since the introduction of PoC at the start of November last year, there are already some positive signs for 32Red. In January, the group announced its fifth consecutive year of double-digit growth, with net gaming revenues up 26 per cent to £32m. What's more, it ended 2014 with record monthly revenues in December - after the introduction of PoC. And 2015 is also off to a good start. With strong cash flow, management says the business has "never been in better shape" as sales during the first 20 days of the new financial year rose 31 per cent. And while 32Red admits it's too soon to tell the effects of the new licensing regime, the company has noted that a number of rivals have indeed withdrawn from the UK, which has left it well-placed to mop up the vacant market share.We think 32Red has done a good job of handling the changing regulatory environment so far. It chose to tackle the challenge of PoC differently to its peers. Groups such as NetPlay TV (NPT) and 888 (888) hiked marketing budgets to snare more customers before the introduction of the tax. The strategy was: more customers, higher revenue, less impact on profitability. But these strategies have not proved successful across the board. NetPlayTV admitted overspending, issued a profit warning and the new management team is rearranging budgets this year. contrast, 32Red curbed its marketing spend. This was the case with its Italian business, too, as the country has also gone through recent regulatory changes.The strategy has left the group with a tidy cash pile. It also gave management the confidence to pay a special dividend in 2013 and to seal a strategic acquisition in early September last year. It bought the UK customer database of the Go Wild casino from Go Wild Malta Ltd and Go Wild's British customers were migrated to the 32Red platform around 15 September 2014. At the time, commercial director Matt Booth called the deal "low risk" and "seamless". Following this, announcing half-year results at the end of September, the group raised the dividend by a quarter to 1p a share to demonstrate management’s confidence for the future. Now, marketing will ramp up again, both at home and abroad. With net cash of almost £5m the group is well funded for its marketing to drive to exploit growth opportunities in the new regulatory environment. The strong cash position will also support the hearty dividend yield, which is forecast at 5.2 per cent this year.There's every indication that growth at 32Red will ultimately offset rising costs from PoC. Profitability may be hit this year, but profit growth should resume thereafter. Trading on eight times forward earnings, the stock is priced for failure, but the figures tell a different story. Those investors willing to place a high-risk bet could see it pay off handsomely. Buy.
dandigirl
11 Feb 2015
Re: WH possible bid for 888 GD: WH is overseas already - it has a strong presence in Gibraltar where it is a member of the GBGA - along with 32Red and others - which is still fighting imposition of the tax. ... and one comment I heard was that the tax will not have too much effect anyway.
Go Dink
11 Feb 2015
Re: WH possible bid for 888 I am a bit surprised about WH's move though. I think Labour have said they will either further regulate or further tax betting firms so I thought any consolidation (or not) would have occured after the next election. Then again I guess WH could buy 888 and move overseas!
dandigirl
10 Feb 2015
Re: WH possible bid for 888 From the 32Red website it appears there is a LAD connection...Background32Red was founded by Edward Ware, who left his position as Managing Director of <b> Ladbrokes </b> International in 2000 to pursue his vision of an independent, specialist online casino. Backed by friends and associates and a good deal of personal financial commitment, Edward and the talented management team he has assembled have grown 32Red from a start-up venture into one of the industry's most respected operators.
dandigirl
10 Feb 2015
Re: WH possible bid for 888 GD; There is some talk of industry consolidation so why not? The market cap of 32Red is tiny. Given that it is highly successful why wouldn't someone want to take it over and enlarge it? Frankly I'm astonished that someone hasn't come for it already. That someone ought to be such as LAD but the management there is so lacking in vision. For LAD, 32Red is almost petty cash but doubtless the opportunity will not occur to them until it is too late.
Go Dink
10 Feb 2015
WH possible bid for 888 So looks like WH is possibly bidding for 888 at 210p per share (although one major holder is apparently holding out for 300p).Could be a bid for TTR later but I doubt it. Happy to be proved wrong.
dandigirl
22 Jan 2015
Re: Todays move Trading update - see News - and it is a good one. The interesting thing for me is that December's revenues were at a record high and while it is still early to evaluate the effects of the POC this augers well. Perhaps it will be not all that bad after all.
Current Investor
22 Jan 2015
Todays move Anyone idea why yesterday and today sudden move upwards?Cant find any new
PSV Bignozen
31 Dec 2014
Re: Interest [link]
pyueck
30 Dec 2014
Re: Interest Surely the fall is due to the new 20% tax on net gaming revenue. With a quick little calculation this would have impacted h1 results by making a 1.2m pbt into a 1.8m loss. I guess this would explain the fall!P.S. the calcs above are very rough, know they are not totally correct as they assume all net gaming revenue from the UK, but just to illustrate my point.
