Stride Gaming — Recommended cash offer from Rank

Stride Gaming — Recommended cash offer from Rank

Rank Group has made a recommended £115.3m cash offer for Stride Gaming, which equates to an EV of £93.4m. Using the run-rate H119 EBITDA, the deal is valued at c 7.5x EV/EBITDA. The offer of 151p per share is a 29% premium to the previous day’s closing price. Irrevocable commitments have been received by 61.3% of Stride’s shareholders and completion is anticipated in Q319.

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Stride Gaming

Recommended cash offer from Rank

Cash offer from Rank

Travel & leisure

3 June 2019

Price

148p

Market cap

£112m

Net cash (£m) at February 2019

15.5

Shares in issue

75.8m

Free float

35%

Code

STR

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

28.7

27.6

(1.7)

Rel (local)

33.4

26.5

5.8

52-week high/low

149.5p

83.5p

Business description

Stride Gaming is a leading online gaming operator in the UK. It uses proprietary and purchased software to provide online bingo and slot gaming. It was formed in 2012 and only operates in regulated real money gaming markets.

Next events

Posting of scheme document

June 2019

Analyst

Victoria Pease

+44 (0)20 3077 5740

Rank Group has made a recommended £115.3m cash offer for Stride Gaming, which equates to an EV of £93.4m. Using the run-rate H119 EBITDA, the deal is valued at c 7.5x EV/EBITDA. The offer of 151p per share is a 29% premium to the previous day’s closing price. Irrevocable commitments have been received by 61.3% of Stride’s shareholders and completion is anticipated in Q319.

Year end

Revenue*
(£m)

EBITDA
(£m)

EPS**
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/17

89.9

20.2

25.8

2.7

5.7

1.8

08/18

89.0

16.1

19.2

3.0

7.7

2.0

H119

39.0

6.2

6.9

0.0

N/A

N/A

Note: * Adjusted revenue excludes social from FY18 and includes Stride’s share of Stride Together (including Aspers JV). **EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

£115.3m cash offer; c 7.5x EV/EBITDA

Following the announcement of a strategic review in February 2019, Stride has confirmed that it has received a recommended £115.3m cash offer from Rank Group. This includes £15.5m net cash at H119, as well as £5.7m cash received post period relating to the sale of QSB. The offer of 151p per share is a 29% premium to the previous day’s closing price and, using the H119 EBITDA run rate, the deal equates to c 7.5x EV/EBITDA. Irrevocable commitments have been received by 61.3% of Stride’s shareholders and completion is anticipated in Q319. Rank has stated that combined net online gaming revenues of c £185m will make it the second largest online bingo provider in the UK, with a 4% market share for UK online gaming.

H119 results reflect sector challenges

Stride has also reported H119 results, with net gaming revenues (NGR) of £39.0m, a 13% decline compared to the previous period. NGR from the proprietary platform declined by 9% to £27.0m, while NGR from the non-proprietary platform declined by 24% to £11.5m. Similar to other gaming operators, revenues have been affected by ongoing regulatory challenges and the requirement to implement social responsibility measures, which specifically includes source of funds checks. Adjusted EBITDA declined by 23% to £6.2m. Excluding cash in assets held for sale (£0.6m), net cash of £15.5m was lower than the £21.6m at FY18, largely due to the payment of a £7.1m fine to the UK regulator.

For the purposes of the Takeover Code, Edison Investment Research is deemed to be connected with Stride Gaming.
Stride Gaming is a research client of Edison Investment Research Limited

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Stride Gaming and prepared and issued by Edison, in consideration of a fee payable by Stride Gaming. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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