Reiterate FTM Potential Price of $58 with the potential for upside
Following the Q1/24 results I wanted to revisit the Mar 6th post regarding the potential future value of Pollard. This quarter provides strong support the PBL achieving the metrics set forth in that post.
My previous post called for a future share price of $58 using the core assumption:
Base business EBITDA of $46M
ILottery operating income / EBITDA of $54M
Debt levels of $120M (As at Q1 $77M)
If we take the 24/Q1 Results and annualize them we can gauge the validity of my assumptions. (despite Q1 traditionally being the weakest quarter)
Base Business EBITDA Q1(annualized) [23.7-14.9] 8.8M x 4 = 35.2M (77% of est)
iLottery operating income Q1(annualized) 14.6M x 4 = 58.4M (108% of 54M est)
Based on the Q1 results, the guidance provided and the fact that financial performance is weighted to Q3 and Q4 the confidence in the $58 FTM is very high.
The reduction of long-term deby by $43M ($120M-$77M=$43M)
$1.59/share increase in value from debt reduction alone ($43M / 27.055 s/o)
Here is a reminder of the valuation approach used in March 6th.
FROM PREVIOUS POST:
New 12 month valuation could look like
BASE BUSINESS VALUE
EBITDA 46M (46% of expected 2024 EBITDA $100M)
EV/EBITDA Multiple 12x
EV = 46Mx12 = 552M
DEBT = 120M (according to SEDAR annual financial statement filing filed today)
Equity Value = 552M-120M = 432M
Share outstanding 27M
Base business equity value / share = 432/27=$16.00
Now for the more interesting part, the iLottery Valuation
ILOTTERY BUSINESS VALUATION
ILottery Op Inc / EBITDA 54M (54% of 2024's 100M EBITDA estimate)
EV/EBITDA Multi 21x (using the neogames current multiple of 21.6x)
EV = 54x21 = 1,134M
No Debt so EV = Market Cap = 1,134
Shares outstanding 27M
Implied iLottery Value / Share = 1,166/27 = 42.00
So, if we combine the base value / share of $16.00 with standalone iLottery value / share of $42.00 we arrive at a sum of the parts valuation of $58.00/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.