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

Canaccord BUY...target $4.00

[seajust]

Canadian Equity Research 25 April 2017 BUY PRICE TARGET C$4.00 Price (24-Apr) Ticker C$1.29 NYX-TSXV 52-Week Range (C$): 0.97 - 2.98 Avg Daily Vol (000s)  : 253.04 Shares Out. (M)  : 105.4 Market Cap  (C$M): 136.0 Dividend /Shr  (C$): 0.00 Dividend Yield (%)  : 0.0

Tough Q4/16 but outlook improving marginally NYX Gaming reported revenue of $54.5M that was flat sequentially and just shy of consensus at $55.5M; adjusted EBITDA of $12.9M was below consensus of $14.3M. While the company previously stated that margin weakness would persist in Q4/16, the ~3% sequential decline was more than we were expecting. NYX provided preliminary Q1/17E guidance indicating strong revenue growth ($57.0-$61.0) which betters our $54.8 million estimate and adjusted EBITDA ($15.0-$17.0) puts our $16.8 million at the high end. The company's guidance supports our top line growth outlook however adjusted EBITDA margins appear to be taking longer to recover which may push back any recovery in the stock price towards the back half of the year. NYX is BUY-rated with a C$4.00 target based on 11.5x 2017E EV/EBITDA. Investment highlights • Financials somewhat underwhelming. NYX Gaming reported revenue of $54.5M (street $55.5M) and adjusted EBITDA of $12.9M (street $14.3M). Gross margin of 88.3% was broadly in line with our estimate of 88.0% and consensus of 89.0%. • Adjusted EBITDA was messy. The company underwhelmed on adjusted EBITDA in spite of a strong revenue result; the $12.9 million result (street $14.3m) showed sequential margin compression of 300bps to 23.7% which was shy of consensus expectations of 25.8%. The company took a write down of goodwill related to its CryptoLogic and Chartwell assets to the tune of $66.1 million, which indicates that the assets are underperforming. • Q1/17E Guidance is decent. The company provided preliminary insight into first quarter results, indicating strong revenue growth ($57.0-$61.0) which betters our $54.8 million estimate with adjusted EBITDA ($15.0-$17.0) which puts our $16.8 million at the high end. We like the revenue trajectory though at the mid-point of guidance this implies a 27% EBITDA margin, which is not showing the expansion we would have hoped for and that we think the stock needs to re-rate in the immediate term. Valuation We consider NYX Gaming to be an undervalued stock and at current levels could have potential buyers sharpening their pencils. NYX is BUY-rated with a C$4.00 target based on a multiple of 11.5x 2017E EV/EBITDA, in line with peers at 11.4x. The stock currently trades at 4.9x 2017E EV/EBITDA. We view the steep discount to peers as unwarranted given its growthy content business, long-tenured (and sticky) OpenBet customers, and a management team with a high proportion of ownership.

Investment Recommendation Date and time of first dissemination: April 25, 2017, 08:15 ET Date and time of production: April 25, 2017, 08:15 ET Target Price / Valuation Methodology: NYX Gaming Group - NYX Our target price is based on 11.5x 2017E EV/EBITDA. Risks to achieving Target Price / Valuation: NYX Gaming Group - NYX Risks to our outlook include the company's ability to acquire and retain customers in the highly competitive and fragmented gambling industry. Other risks include key executives and managers could leave or retire from the firm, the macroeconomic environment could deteriorate straining end customers. Additionally, NYX Gaming Group has partnered with third parties for content and has formed a joint venture in the US. These agreements are subject to cancellation or suspension due to unforeseeable events. NYX Gaming may not be able to find a suitable replacement vendor which could be an impediment to its ongoing business. Gaming remains a regulated industry which is subject to change from time to time which could impact NYX Gaming Group's business. Distribution of Ratings: Global Stock Ratings (as of 04/25/17) Rating Coverage Universe IB Clients # % % Buy 572 60.59% 39.34% Hold 275 29.13% 18.18% Sell 27 2.86% 11.11% Speculative Buy 70 7.42% 70.00% 944* 100.0% *Total includes stocks that are Under Review