Call it hometown bias. When it comes to gaming companies, the U.S. financial press chooses to headline familiar American names – Las Vegas Sands, Caesars, MGM Resorts, and the like.
But on the supplier side, it is international companies that are the behemoths. Take these three as examples: Evolution, market cap around US$20 billion, Aristocrat, AU$35 billion (US$23.2 billion), and Flutter, a dizzying $41 billion.
Those are not penny stocks. In fact, compare them with the best-known American-listed counterparts IGT and Light & Wonder at $4 billion and $8 billion, respectively.
Two things are interesting about this trio:
1) Investors that got in a few years ago made a ton of money (Flutter has tripled over five years, Aristocrat’s a 10-bagger over 10 years and Evolution a 10-bagger in just five years).
2) They all have promise of much more growth to come. Aristocrat is growing earnings per share at 21 percent a year. Flutter sees free cash flow more than doubling to $2.5 billion in 2027. Evolution is growing EBITDA at 15 percent a year.
The future for Aristocrat comes from its dominance in slot machine games, from its fast-growing digital business and its effective use of $1.5 billion annual free cash flow to make strategic acquisitions.
For Evolution, much of the growth is geographic. The Swedish company gets 39 percent of its revenue from Europe but is rapidly expanding in North America and Latin America, which provide 12 and 7.5 percent of revenues, respectively. And populous Asia, which already provides 38 percent of revenues, is its fastest growing region.
Evolution effectively owns a monopoly on live dealers for online table games. That segment provides 85 percent of its revenue but with its huge customer base, Evolution also has promise to significantly grow its RNG-based games, too.
And with 70 percent EBITDA margins, Evolution is a huge cash flow generator.
Flutter develops local companies that it calls hero brands. In the U.S., that’s FanDuel, which has 40 percent online sports betting market share, and a growing 25 percent of highly profitable online gaming. Then there is jurisdictional expansion, such as when U.S. states legalize digital and whole new countries open, like Brazil.
THEN THERE’S THIS LITTLE GUY
The tadpole swimming in the same pool as the behemoths is Inspired Entertainment.
As many know, Inspired has a steady but low-margin business operating games in holiday parks in the U.K., as well as offering slots to betting shops there and increasingly on North American slot routes.
Its big promise has been virtual sports where gamblers bet on faux games playing out every couple of minutes on big screens, a business capable of capturing around 10 percent of the sports betting market, the company says, though that has yet to prove itself in the U.S.
Inspired also operates iLottery in the Dominican Republic thanks to an acquisition and can dream on that segment’s potential as iLottery spreads into traditional lottery jurisdictions.
Then there is fast-growing online gaming, where Inspired enjoys EBITDA margins around 80 percent.
All of that makes for a story stock. That is even more so when one considers that Executive Chairman Lorne Weil once took a little company name Autotote, maker of tote boards at racetracks, a real niche if there ever was one, and along with current CEO Brooks Pierce, built it into Scientific Games-Light & Wonder.
The latest chapter in this story stock is what it calls hybrid dealer. That is a video display that simulates live table game dealers for online sites. It is an effort to tap into Evolution’s phenomenon by offering a less expensive alternative to live dealers.
Whether or not hybrid dealer plays out is still to be seen, much like virtual sports. But what is known is that big companies have an interest. BetMGM and Flutter have signed on to give it a try.
As with virtual sports, capturing even a slice of the market – say 10 percent – would multiply Inspired’s market value. Flutter’s business alone could accomplish that.
But there may be another route to profit for shareholders. Inspired’s stock has not been inspiring. It has lagged. The market cap is $240 million.
One can imagine a Flutter deciding to buy Inspired if hybrid works out. Or an Aristocrat, which has just gone into iLottery. Or even an Evolution if it wants to block out a competitor at the lower end.
Finally, it is worth noting that Weil is 77 years old. If a bidder comes calling, he may decide to take a pretty profit now rather than struggle on against the giants. And given its tiny market cap, one of those giants can easily afford to pay a nice price for this story stock.
