Gaming: FY22 Reporting Season Preview

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By Alexander Mees

Job title:

Head of Research

Date posted:

05 July 2022, 10:40 AM

We preview the FY22 results of the five gaming stocks in our universe that report in August. We expect the best earnings growth from the two businesses primarily exposed to lotteries, Jumbo Interactive (JIN) and The Lottery Corporation (TLC).

Star Entertainment Group (SGR), Tabcorp (TAH) and BlueBet (BBT) are forecast to report a decline in EBITDA due mainly to the impact of COVID and increased operating expenditure. We have lowered EBITDA estimates in both FY22 and FY23 for all companies except JIN. We have downgraded SGR to HOLD.

The ratings for Aristocrat Leisure, BBT, JIN and TLC all remain ADD and TAH remains on a HOLD.

Watch

The Lottery Corporation (TLC) - ADD

TLC's FY22 result will be its first since the demerger with TAH. We expect a steady performance with EBITDA up 13% to $691m. The larger Lotteries division is forecast to deliver all of the growth in earnings (EBITDA up 18%), with Keno EBITDA down 15% after a strong FY21. We have updated the number of large jackpots in our model, which takes our FY22 EBITDA estimate down by 2%, 1% below consensus. We forecast 5% growth in EBITDA into FY23. We retain an ADD rating with an increased target price (Morgans clients login to view).

The Star Entertainment Group (SGR) - HOLD (previously ADD)

FY22 was a tough year for SGR. COVID restrictions enforced casino closures and operating restrictions. Regulatory investigations have been ongoing and could result in material penalties. We expect FY22 earnings to be down materially y/y. We have lowered our FY22 EBITDA forecast by 28% to $220m to take account of higher operating costs, bringing us in line with consensus. Ahead of the findings of the Bell Review (due 31 August), we prefer to wait and see for any potential penalties and downgrade from ADD to HOLD with a reduced target price (Morgans clients login to view).

Tabcorp (TAH) - HOLD

TAH held an investor day in June and we do not expect incremental new detail on the strategy to be released at the FY22 result. The focus is likely to be more on the costs and practicalities of the demerger, the impact of recent POCT changes and that of recent adverse weather. We have lowered our EBITDA estimate by 5% to $369m, 2% above consensus. We forecast 12% growth in EBITDA into FY23. We stay on a HOLD, but with a higher target price (Morgans clients login to view).

Jumbo Interactive (JIN) - ADD

We expect FY22 to have been another year of good growth for JIN. We have increased our EBITDA estimate by 3% to $55m, up 13% y/y with most of the growth driven by the rapidly expanding SaaS division. Higher assumed costs leave our EBITDA and EBIT estimates 3% below consensus. We forecast 24% growth in EBITDA into FY23. We reiterate our ADD rating with an unchanged target price (Morgans clients login to view).

BlueBet (BBT) - ADD

BBT's Australian business is forecast to achieve strong growth in turnover in FY22 (48%) as it increases marketing costs to drive customer acquisition. Those higher marketing costs are likely to reduce EBITDA in Australia to breakeven, with the investment in the US growth strategy pushing group EBITDA to a forecast loss of $1.2m. We have lowered our FY22 gross profit estimate by 4%. BBT has just signed an agreement for its fourth US state. The longer-term potential is significant. We retain an ADD rating with a target price (Morgans clients login to view).

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