Edison Predicts 5% Divy in 2019 @ 30% payout ratio2017 was a transformational year for JPJ, with a successful London listing followed by substantial improvements in the capital structure. JPJ is the leading operator in the £800m UK online bingo market and has now delivered five consecutive sets of robust quarterly results. FY17 revenue growth of 14% y-o-y to £304.7m was accompanied by an operating cash flow of £102m. After the final major earn-out payment in June 2018, we expect meaningful deleveraging. Our forecasts now include dividend payments from 2019. The shares rose by c 40% in 2017 but still trade at a significant discount to peers at 8.1x EV/EBITDA and 6.9x P/E for 2018e.
Year end Revenue (£m) EBITDA* (£m) PBT* (£m) EPS* (p) DPS (p) P/E (x) Dividend yield (%) 12/16 269.0 102.2 83.5 112.5 0.0 7.3 0.0
12/17 304.7 108.6 78.2 103.9 0.0 7.9 0.0
12/18e 334.0 113.6 93.1 119.7 0.0 6.9 0.0
12/19e 358.7 116.5 102.0 128.2 40.0 6.4 4.9
12/20e 381.5 122.2 108.7 136.1 45.0 6.0 5.5
Note: *EBITDA, PBT, EPS are normalised, excluding amortisation of acquired intangibles, exceptional items, interest accretion and share-based payments. EPS is fully diluted. Revenue and EBITDA slightly ahead of estimates Overall, FY17 net gaming revenues (NGR) grew 14% y-o-y to £304.7m, above our estimate of £298.2m. For Q417, NGR grew 13% vs Q416, primarily driven by 42% growth in Vera&John (24% of revenues). FY17 adjusted EBITDA of £108.6m compares to £102.2m in FY16 and was also above our estimate of £107.4m. As expected, Q417 EBITDA margin was affected by higher UK gaming taxes (the addition of bonuses into the Point of Consumption Tax or POCT 2) and a targeted marketing campaign for Jackpotjoy UK. We have nudged up our FY18 and FY19 revenue forecasts by c 2.5%, but our EBITDA forecasts remain broadly unchanged. Our new FY20 figures are affected by the agreed increase in service fees payable to Gamesys, with a 50bp drop in the EBITDA margin vs FY19. Strong operating cash flow – dividends from 2019 With 94% cash conversion, FY17 operating cash flow was £102m and the company ended the year with unrestricted cash of £59m and net debt of £311m, in line with our estimates. Net debt adjusted for the remaining earn-outs was £387m. Following the c £50m earn-out payment in June 2018 (for Botemania), we estimate FY17 adjusted net debt/EBITDA of 3.6x will fall to 2.7x in FY18 and 1.9x in FY19. We have now included dividends into our forecasts from 2019, assuming a c 30% payout ratio. Valuation: FY18e P/E of 6.9x JPJ has produced five sets of robust quarterly reports since re-listing in London. After rising c 40% in 2017, the share price performance has drifted in 2018. At 6.9x P/E, 8.1x EV/EBITDA and 13% FCF yield for 2018e, JPJ trades at a meaningful discount to peers. This appears unjustified given JPJ’s growth profile and high cash generation, which should lead to demonstrable debt reduction from mid-2018 (post the Botemania earn-out payment). JackpotJoy plc FY17 results A transformational year Price 821p Market cap £608m Net debt (£m) at December 2017 311 Shares in issue 74.1m Free float 95% Code JPJ Primary exchange LSE Secondary exchange N/A Share price performance % 1m 3m 12m Abs 2.6 (0.7) 44.5 Rel (local) 5.0 5.6 49.7 52-week high/low 872p 534p Business description Jackpotjoy plc (JPJ) is a leading online gaming operator mainly focused on bingo-led gaming targeted towards female audiences. Around 76% of revenues are generated in regulated markets. Next events Q118 results 15 May 2018 Analysts Victoria Pease +44 (0)20 3077 5740 Katherine Thompson +44 (0)20 3077 5730 gaming@edisongroup.com Edison profile page Travel & leisure Jackpotjoy plc is a research client of Edison Investment Research Limited JackpotJoy plc | 20 March 2018 2 Results comfortably ahead o