Apr 27: Kambi: clients up, profit down

Kambi Q1, Boyd Q1, Morgan Stanley SB Q1 preview, Ontario app update, BlueBet US launch +More

Earnings+More

Apr 27, 2022

Good morning. On today’s agenda we have:

Post-DraftKings, supplier Kambi suffers a revenue and profit fall.
Boyd Gaming sees the positives despite macro fears.
Morgan Stanley says Q1 sports-betitng GGR misses its target.

Long shot kick de bucket. Click below:

Kambi Q1

Revenue down 15% to €36.9m, operating profit down 61% to €7.3m.
The group highlighted new client signings NorthStar Gaming, MaximBet and Ontario launches for Rush Street Interactive, Unibet and LeoVegas.

Accentuate the positives: Kambi group revenues were down 15% but CEO Krisitian Nylen and CFO David Kenyon were keen to accentuate the positives.

Kenyon pointed out that although operator turnover had dropped 25% due to DraftKings migrating in Q321 and tough YoY comps, the fall in turnover had seen revenues drop just 15%.

David Kenyon on mitigating 25% turnover drop: “Our contracts are structured in tiers, this means we have lower commission rates on the biggest revenue generators, so we have lower revenue share (from clients such as DraftKings) and higher revenue share from smaller operators.”

Kenyon gave some indication of the impact of the DraftKings migration on its Q122 figures. He said the sportsbook made up around 40% of group turnover during the same period last year.

Take your poison: Nylen was tightlipped with regard to the €8m convertible bond/‘poison pill’ Kindred had taken out in the group. Recall, Kindred can convert the bond into shares which would give it a controlling stake in Kambi and affect potential M&A outcomes.

Asked if there were specific reasons why Kambi had not repaid the bond despite saying it was in a position to do so, Nylen said: “Yes, but I don’t want to comment on it. There are benefits to repaying it, but there are also benefits to not repaying. Obviously it gives us more freedom if and when we decide to repay it.”

Dutch courage: Kambi’s statement said it expected the regulatory headwinds in the Netherlands “to ease soon”, but Nylen would not provide any timeline on when Kambi clients such as Kindred or LeoVegas might receive their licenses there.

“We are not the ones that have direct relationships with regulators, it’s best to ask the operators. We have hope, but no indications.”

New model army: Nylen highlighted the group’s tech developments and said it would be launching a modular API-based standalone product early next year that would see the launch of an “internal data and pricing and all Abios (esports data and odds) products through a new interface”.

Nylen on the risk of ‘trading down’ with the modular offering: “We have not finished developing the service and we’re not keen on cannibalizing our fully managed services and so we will keep looking at it very closely.”

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RSI analyst upgrade

Right here, right now: Major Kambi client Rush Street Interactive has been raised to overweight by analysts at Wells Fargo. The team suggests RSI was long the “right stock at the wrong time”, hence the 63% YTD fall in the share price.

WF said the market was entering a seasonal period when promotional spend “should” moderate with the GGR mix skewing more towards igaming, where RSI is strongest.
The team suggests RSI has shown resilience in that vertical including a ~25% share in PA and ~7% in NJ and MI.

Restating the case: Wells Fargo suggests RSI can “(re)distinguish itself as a disciplined operator with a realistic path to profitability”. They suggest EBITDA losses have “bottomed”.

For FY2022, WF forecasts an adj. EBITDA loss of -$106m with 1Q22 the low-point at -$43m) and then sequential improvement through the year.

Buy/build: The team note that RSI owns its igaming tech stack which they believe “has scarcity value given the evolving digital gaming ecosystem”. They point to Boyd’s Pala deal (see below) for comparison.

Boyd Gaming Q1

Revenues up 14.3% YoY to $860.7m; adj. EBITDAR up 15.8% to $338.8m.
Locals up 30.9% to $118.7m, Midwest/South up 2.4% to $225.5m, downtown up nearly 10x to $18.4m

Say what you see: Despite repeated questioning on any signs of weakness in the consumer due to inflation and gas prices along with other uncertainties, the Boyd management team insisted their “core customer” was “remarkably consistent”.

“We presume a fall off, but honestly it is not discernible in the database,” said CEO Keith Smith. “The quarter actually strengthened as we went through it.”

Marginal: Smith pointed out that for Q2 a more instructive comparison will be sequential rather than YoY due to the tough comps against the same period in 2021. But he added that the business expects to maintain the elevated margins, albeit not every bip.

Labor pains: The only pressure on the business comes from adding back labor costs.

Online developments: On sports betting, Boyd continues to expect around $30m in EBITDA for 2022 from its relationship with FanDuel. On its own account, the recent $170m deal for Pala Interactive was touched upon with Smith pointing out its igaming ambitions remained as a regional player rather than having a national presence.

Keith Smith, CEO: “We're taking a regional approach focused on the 10 states where we do business and maybe a few adjoining states where we get a lot of customers from.”

The dog that didn't bark: As with Monarch last week, Truist noted “no impact from macro” and Deutsche Bank said that while record results “in a vacuum” should be viewed favorably, near-term prospects remain choppy given the widespread concerns over consumer spending.

Gaming Realms FY21

Revenue up 29% to £14.7m, adj. EBITDA up 71% to £5.7m.
Licensing revenue rose 48% to £11.1m but social publishing revenue was down 8% to £3.6m.
Q1 licensing revenue up 43% in Q1 to £3m.

Slingo yer hook: The games producer said that by Dec21 it had increased its portfolio to 53 games and had launched Slingo Originals with 35 partners including WynnBet, Sisal and Aspire Global. A further 10 more clients were added in Q122.

The company achieved licensing in Michigan and Pennsylvania and in Q1 it has launched its Slingo portfolio in Ontario, Quebec and Spain.
Peel Hunt analysts were impressed, but not enough to upgrade forecosts.
“Something really rocks and something really rolls, but we are leaving our forecasts unchanged today to leave a margin of safety.”

Morgan Stanley SB Q1 preview

A hit and a miss: The MS team says Q1 OSB handle “appears” to have beaten their own estimates by 15% but that GGR will miss by 4% due to lower hold (6.1% vs. 7.5% in Q121).

MS said the weak Feb was “more a function of our mis-modeling” of future bet settlements than the Super Bowl. They also note that “part” of the lower hold could be elevated promo spend.

Raise the roof: Q1 gaming remained strong, 11% ahead of the MS forecast. In response, the team has raised their estimate for 2022 to $44bn from $4.2bn. They are leaving their sports-betting estimates unchanged.

Draft excluder: The team has also lowered their Q1 estimates for DraftKings (reporting May 6) to $411m from $452m, though they note this is still in line with company forecasts for between $400m-$420m.

They add that DraftKings’ market share appears to have stabilized at ~23% while Q1 hold QTD is at ~55% compared to ~7% for FanDuel and BetMGM at 7.4%.
For 2022, MS forecast DraftKings revenues at $2.08bn vs. $2.2bn previously to reflect the Q1 change and the later than expected GNOG closure. Q1 EBITDA losses dropped slightly to $336m.
MS maintains its overweight rating and $31 price target.

Ontario app update

Leading scorer: Morgan Stanley has also updated their app data analysis for Ontario (provided by Sensor Tower). The team note that theScore continues to slip down the rankings from 65% of app downloads on day one to 16% and 12% respectively for the last two days of the survey data.

Not priced in? Still, the MS team believes the numbers are ahead of pre-Ontario opening estimates for theScore and crucially believes isn't priced into owner Penn National’s stock.
Weight watcher: Partly due to this, MS has upgraded their rating on Penn to Overweight.

Is this helping? MS says it will “also be interesting to see how download share reacts the next few days as Penn’s Barstool President Dave Portnoy is in Toronto promoting the app.”

Partnerships

FanDuel has announced an official sponsorship deal with the Yankees. Bally Corporation has agreed a partnership with the Cleveland Browns as part of the group’s launch of its online sportsbook brand BallyBet in Ohio. Circa Sports’ logo will appear on the NHL’s Vegas Golden Knights jerseys through a $10m-a-year sponsorship deal.

Light & Wonder analyst update

Light and bitter: Following the recent lottery sale and the subsequent refinancing, the team at Deutsche Bank have trimmed their 2022 EBITDA forecasts partly due to the cadence of product sales (more H2 weighted), lower SciPlay margins and lower ancillary gaming revenues.

Blue Bet US launch

In the bag: Australian-listed BlueBet has announced it will launch in the US under the ClutchBet brand name. The company has market access in Iowa, Colorado and Louisiana.

The company says it is a significant moment of its “two-stage, capital-light” US market entry. The new brand will launch first in Iowa in a couple of weeks.
The company announced its third skin deal in Louisiana yesterday with racetrack owner Louisiana Downs.
BlueBet will follow its B2C launch with a B2B offering designed for the US. The company has also announced Jake Francis as its new US head.

Newslines

Six acres and a mule: Tilman Fertitta, owner (for now) of Golden Nugget Online and soon to be a major shareholder in DraftKings, via his company Fertitta Entertainment, is acquiring six acres on the Las Vegas Strip, opposite CityCenter for $200m, according to the LVRJ.

Town Schrier: The advisory firm Tekkorp Capital has announced that industry veteran Steve Schrier is to join the team. Schrier was part of the team that built and sold Ash Gaming to Playtech in 2010, then subsequently spent five years at Playtech CCO and then at SG Digital.

Use your loaf: Caesars has expanded its rewards program with the Caesars Rewards Visa card through a partnership with Bread Financial giving users the opportunity to earn reward credits as well as raise their tier status with every purchase.

Crown, season four: Crown Resorts has postponed its meeting for a shareholder vote related to the US$6.3b acquisition by Blackstone from April 29 to May 20 as Blackstone has not yet obtained all necessary regulatory approvals.

Guide dog: IGT became the first US supplier to receive the Global Gaming Guidance Group responsible gaming accreditation for its sports-betting technology business.

Revolutionary front: Brazil’s Senate has said it will create a Parliamentary Front Against Gambling. The proposed legislation, which would legalize casinos, igaming, horserace betting, slots and bingo has been approved by the Chamber of Deputies is currently before the Upper House.