New Coverage Enthusiast Gaming Holdings Inc. is “building the home for Generation Z and Millennial gamers,” according to H.C. Wainwright & Co. analyst Scott Buck, who sees it “positioned for revenue acceleration and margin expansion.”
“The company’s owned and operated digital media platform includes more than 100 gaming related websites and more than1,000 YouTube channels. This significant portfolio of digital properties is coupled with gaming and live event content creating a flywheel in which the company can monetize its digital assets,” he said.
In a research report released Wednesday, Mr. Buck initiated coverage of the Toronto-based company with a “buy” rating, expecting its revenue accelerate through next year as it works to improve monetization of digital properties.
“This includes improved advertising revenue performance through increased direct advertising sales as well as potential opportunities to repackage and sell content to third parties including OTT providers,” he said. “In addition, growth in the company’s subscription business should also provide a high margin stream of recurring revenue, expected to grow at mid to high-double digits and improve visibility. We are currently modeling organic revenue growth of 26.7 per cent in 2022. Additional acquisitions could drive incremental revenue upside to our model.”
In justifying his bullish stance, Mr. Buck pointed to several factors including: a favourable secular backdrop that was accelerated by the pandemic; success in integrating acquisitions with “more on the horizon” and a balance sheet that has been strengthened through two recent capital raises, which he sees reducing the near-term threat of further share dilution.
He set a target of US$10 per share. The current average is $12.25 (Canadian).
“While EGLX shares have declined from an April 2021 high of $8.88, we believe meaningful revenue growth in both 2021 and 2022, expanding gross margins, additional M&A and ultimately positive EBITDA as early as 2022 should help drive new investor interest and push EGLX shares towards, and potentially beyond, our $10.00 price target,” the analyst said.