RE:TD's Flash NotesUPDATED ACTION NOTE
Outlook Remains Promising for Esports Event
Q4/21 results.
Impact: SLIGHTLY POSITIVE
OverActive ended the year strong with both revenue and EBITDA in Q4 exceeding
our expectations as outlined on page 2. This was the first time OverActive held a
conference call, which provided good directional commentary on the outlook for the
company which is also outlined on page 2.
Our revenue forecasts have come up, driven by both teams operations, as we
expect franchise league share revenue will grow off a higher base than what we had
previously forecasted, and business operations, largely driven by the addition of the
newly announced Zilliqa deal (see our flash note here - link) which had not been in
our prior forecasts. This has been offset by an increase in live event expenses with
in-person live events for both Toronto Teams in the CDL/OWL is set to take place
in Q2 and Q3. As such, our EBITDA estimates have come downs slightly, but we
continue to expect OAM reaching positive EBITDA in fiscal 2023.
Our target price continues to be based on 6.0x 2024E Revenue less a 20% timevalue and uncertainty discount. With no change to our methodology, our rounded
target price remains at $2.00, although the unrounded target has increased slightly.
TD Investment Conclusion
One of the key points that drive our thesis, outlined in our initiation report (see
here - link), is that OverActive is an early mover in a growing industry. The recent
news flow has supported that thesis as: 1) OverActive enters Valorant, a popular
esports title, which has the potential to become a new franchise league;
and 2)the list of sponsorship partners has grown by over 10 partnerships during 2021,
from both endemic and non-endemic (ie. esports/gaming related vs non-related)
brands. Although there continues to be some uncertainty around the financing of the
announced venue, commentary on the call suggest that progress has been made
and that we should get more clarity later this year. That said, management has been
executing well, supported by the growth in business revenues as well as sponsorship
partners.
As such, we are comfortable with maintaining our SPEC. BUY rating