Post by
FormerHedgie on Jan 16, 2024 5:46pm
Thinking about sum of the parts valuation today
I was happy to see the positive action in the stock today. There are so many things, in my opinion, that can cause the share price to jump. However, I got thinking about a sum of the parts valuation for PBL. I think the iLottery business is worthy of a premium valuation compared to the base lottery ticket business especially when our partner NeoGames (NGMS : NASDAQ) gives us a perfect comp to use for valuation purposes. For me, the most important metric is their current EV/EBITDA multiple of 21.6x.
So the first thing would be revalue the base business excluding the iLottery EBITDA (I am using the date from the 2022 annual report btw). Previously I had made a base assumption of 100M of EBITDA for all of PBL. In 2022, the iLottery business generated operating income of $33.2M (which I am going to use as a reasonable close proxy for EBITDA.
The base business valuation then is,
EBITDA 66.8M
EV/EBITDA Multiple 12x
EV = 66.8x12 = 801.6M
DEBT = 140M
Equity Value = 801.6-140 = 661.6M
Share outstanding 27M
Base business equity value / share = 661.6/27=$24.50
Base business value / share $24.50
Now for the more interesting part, the iLottery Valuation
ILottery Op Inc / EBITDA 33.2M
EV/EBITDA Multi 21x (using the neogames current multiple of 21.6x)
EV = 33.2x21.6 = 697.2M
No Debt so EV = Market Cap = 697.2
Shares outstanding 27M
Implied iLottery Value / Share = 697.2/27 = 25.82
iLottery business value / share = $25.82
So, if we combine the base value / share of $24.50 with standalone iLottery value / share of $25.82 we arrive at a sum of the parts valuation of $50.33/share
I think the sum of the parts approach is relevant and valid given the very different growth / operating income % and potential for further growth.
Still, I return to the relatively large short interest in PBL of 219k shares. What is the stock going to do when the short tries to cover this position? We could see a GME style spike in the stock if panic cover buying happens.
Regardless, the is a great business, very well run and with almost 65% of the shares, the management will do the right thing (even if they are very conservative).
This stock should be MUCH higher and it is just a matter of time. As good quaters continue to come out, the valuation will return the stock to $50/share range at some point.
Thoughts from other people?