NYX GAMING GROUP LTD 11 PCT DEBS V.NYX.DB

Canaccord comment from Growth conference - Aug 16

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NYX Gaming Group (NYX:TSX-V, C$1.58 | BUY, C$5.00 target) NYX Gaming closed the acquisition of OpenBet in May 2016. The deal filled an important hole for the company as it is now able to offer a world-class sports bet product to some of the largest B2C operators globally, including William Hill, SkyBet, Paddy Power and Ladbrokes to name a few. Management indicated that operationally the business has been performing above expectations but in spite of this the stock performance has been poor as the fully diluted share count increased significantly and investors will have to wait until Q3/16 to see a full quarter of OpenBet in the reported results. OpenBet integration progressing well. Management did not quantify OpenBet progress but indicated that the integration of NYX and OpenBet is at least meeting expectations. This progress is admirable, in our view, as the distractions of negotiating a takeover and transitioning to a new ownership structure could have been disruptive to the business. CEO Matthew Davey discussed the stickiness of revenue and reiterated the expected longevity of the William Hill relationship. Online gaming continues to grow. While we wrote that gaming is approaching maturity in some markets, Mr. Davey stated that the company continues to see meaningful growth in the markets where it operates. This supports our thesis that the core business can deliver strong double-digit revenue growth through new customers and expansion of share with existing customers. "SkinnyBet" product a growth lever. Historically, OpenBet has served only the largest sports-betting operators globally, with companies like Kambi targeting smaller and midsized players. Mr. Davey reiterated that opportunities exist to cross sell an "OpenBet Light" product to NYX's large customer base. In our view, this could be a growth driver at OpenBet which historically adds one or two new customers per year. Reporting is the next potential catalyst. We expect NYX Gaming to report Q2/16 results towards the end of August. The Q2 results will include 41 days of OpenBet results; we would not be surprised if NYX provides an update for the Q3/16 first half, which may provide investors with comfort on the segment. While 2017 guidance isn't expected, it would be a welcome surprise. Mr. Davey indicated comfort with consensus of between $85 and $95 million; currently our forecast sits at the lower end of the range. Valuation. Our $5.00 target price is based on 12.9x 2017E EV/EBITDA.