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Gaming Realms banking on new US licenses

It just launched in Michigan and Pennsylvania and is hoping to ride the growing US market.
Gaming Realms banking on new US licenses
  • Margins improved thanks to economies of scale
  • Multiple new licensing deals in the US

Gaming Realms (GMR) creates gambling games under its Slingo brand and licenses them to casinos. It has a diverse range of games, but the majority are derived from a cross between slots and bingo and each game only takes around a minute to play. Though this is much longer than the three seconds it takes for a game of slots, it is fast enough to fit a couple rounds in during a restroom break at work.

Gaming Realms gets paid on a performance basis. If its game makes money for a casino, then a chunk of that will then be paid back to Gaming Realms. Its licensing revenue jumped up by around 50 per cent in Q2 2020 which indicates that more people were gaming at the start of the Covid-19 lockdowns in the UK and US. Promisingly, revenue was flat in Q3 before rising more steadily for the next three quarters. This suggests it hasn’t been losing many of its pandemic gamers as societies open-up – a major consideration for the industry and shareholders alike. Another issue for Gaming Realms, along with industry peers, is the potential tightening of regulations in the UK and the rest of Europe. The UK gambling commission has announced a package of measures to slow down play and stop apps from celebrating wins.

The hope will be that growth in the US, where regulations are being eased, will offset any hits to its European revenue. The online casino market in the US market is forecast to be worth $10bn (£7.3bn) by 2025, having been just below $2bn in 2019. Gaming Realms is already in New Jersey and has just launched in Pennsylvania with BetMGM and Rush Street Interactive. It has also launched in Michigan with Draft Kings.

House broker Peel Hunt is bullish about Gaming Realms’ prospects in the US and points towards its 144 per cent increase in cash profits to £3.1m as evidence of the influence of economies of scale. The broker is currently forecasting cash profits of £5.4m for the FY21 before rising to £8m in FY22.

The company is currently in growth mode, both in terms of increasing revenue and signing up new licencing agreements. But the gaming market is very competitive and Gaming Realms is currently trading at a forward PE of 23, more than double that of its larger competitor Gamesys. This higher valuation is largely based on the potential of its new US licenses but it might be sensible to wait and see how they perform – there are many variables at play. Hold.  

Last IC View: Hold, 41p, 27 April 2021

GAMING REALMS (GMR)   
ORD PRICE:41pMARKET VALUE:£ 118.4m
TOUCH:37-41p12-MONTH HIGH:47pLOW: 18p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:4p*NET CASH:£11,496**
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20205.20.69-0.22nil
20217.70.800.29nil
% change+48+16--
Ex-div:    
Payment:    
*Includes intangible assets of £11.5m or 4p a share. ** Includes a £3.5m secured convertible loan agreement with Gamesys Group Plc