Bragg Gaming (OTC:BRGGF) is a B2B platform provider for igaming that is predominantly focused on providing exclusive content on its in-house developed RGS in addition to casino aggregation and offering a fully customizable platform. It operates primarily in Europe but is located in Canada and hopes to penetrate the US market and win business in the soon-to-be-legalized Canadian market. It has highly experienced and connected management and board members that should be able to parlay their backgrounds into future customer wins. Due to its high percent of sales in Germany, where new regulation is imminent, it is trading at a significant discount to its peers affording investors a unique buying opportunity.
• Bragg Gaming is an EBITDA positive, US$345 million (fully diluted) market cap company with approximately $34 million (€28 million) in cash and no debt. Guidance is for it to generate US$57 million in revenue this year (or 5.5 times EV to sales), flat with 2020 revenues and US$32 million in 2019, with a positive EBITDA of US$5.1 million. Next year it is to conservatively reach US$52 million or €44 million in revenues.
• It plans to grow organically and through acquisition. It is actively pursuing deals to acquire game studios, to add desirable proprietary content and make it more competitive in North American markets. Owning the content would also increase margins for the company; game studios typically operate at 70% gross margins. Rather than being just a distributor, owning the content will allow it to capture 100% of the gross margin. Bragg is also interested in a more competitive sportsbook offering.
• Bragg valuation is well below its peers who trade at 8.6xs EV/Sales because of its obscurity to US investors, and its heavy dependence on Germany that is undergoing a switch to regulated igaming. It recently listed on the Toronto Stock Exchange, but in the US it trades on the OTCQX. On March 29th it announced it has filed an application to list its common shares on the Nasdaq Stock Market and is voting on April 29th on a reverse split of up to 15:1 to meet the minimum price requirement of the exchange. The split will take effect a minimum of five business days prior to listing on Nasdaq, but not before satisfying all of NASDAQ’s other requirements.
• It is also less well known because its operations are mainly in Europe (it reports financials in Euros) and it has no US or Canadian (where igaming is still illegal) revenues. That should change as it pursues opportunities primarily in the soon to be legalized Canadian market, where it is well-positioned, and the US, where it made its first inroad and its current customers are gaining entry.
• Bragg is the only public pure play B2B platform provider. As such, it exhibits considerable operating leverage, which should provide it with greater earnings growth than revenue growth. Its revenues are variable and based on a percent of net gaming revenues of its customers, while its costs are mostly fixed.
• The company paid out its final consideration for the purchase of Oryx in Q1 2021 and will no longer report “loss on remeasurement of consideration” that has been distorting net income reporting since Q2 of 2019. The acquisition has now been paid for in full. We expect the company to pursue further acquisitions to diversify its product offerings and geographic reach and to bring more content in-house.
• Before these short-term problems resolve, investors have an exceptional opportunity to buy Bragg stock well below the valuations of its peers. A year from now, we expect Bragg will not only show accelerated growth but should trade in line with the rest of the online gambling industry. Providers and investors should reap both growth and multiple expansion.
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