On Wednesday, Bragg Gaming Group (NASDAQ: BRAG) and Bally’s (NYSE: BALY) announced an iGaming content development pact. That could be one of multiple catalysts to spark the Canadian gaming technology provider’s long flailing shares.
In a note to clients, Roth Capital analyst Edward Engel initiated coverage of Bragg stock with a “buy” and a $9 price target, implying the shares can double from the September 21 close. He says the company is “an emerging leader among business-to-business (B2B) iGaming suppliers.”
After recent M&A and licensing gains, Bragg now has the distribution needed for ramping market share in regulated markets. Combined with an expanded portfolio of high performing games and tech, we model EBITDA doubling from 2022-24E and BRAG’s valuation rerating towards pure-play B2B iGaming peers,” wrote Engel.
Bragg provides internet casino and sportsbook technology services to gaming operators via its ORYX Gaming brand.
Bragg Gaming Stock Risk/Reward
Bragg is undoubtedly a small-cap stock with a market capitalization of $130.78 million. It’s down 56.66% over the past year, so there is some risk in the name.
On the other hand, a recent round of dealmaking could pay dividends in the long run. For example, the acquisition of Spin Games brought new licensing agreements in the regulated US and Canadian markets into the fold. That’s while the aforementioned accord with Bally’s “significantly increases the diversity of the content Bragg features in key regulated markets,” according to a statement.
Roth Capital’s Engel points out that the acquisitions put Bragg on pace to release a comparable number of new games annually as its larger, more well-heeled rivals. That’s a positive trait in iGaming — an industry where content is king.
“In aggregate, it’s releasing a similar number of games/year as industry leaders like IGT, Light & Wonder, and Evolution, which each have over 20% US market share. With a product pipeline, distribution, and market access comparable to industry leaders, we see Bragg asserting mid-single-digit market share in regulated markets,” added the analyst.
Bragg Stock Looks Cheap
When a stock is down 56.66% in a year and labors below $5, as is the case with Bragg, it’s easy to assume the shares are inexpensive. However, there are important differences between “cheap” and “value.”
One risk with Bragg is that its largest customer accounts for 45% of total sales, while its top 10 customers combine for 71% of revenue. Still, Engel says the current stock price isn’t reflective of what could be compelling earnings before interest, taxes, depreciation, and amortization (EBITDA) growth.
“Bragg’s fastest-growing segments have high margin rev share agreements that should push gross margins above 60% by 2024. With rapid revenue growth and stable fixed costs, we see EBITDA exceeding $20M by 2024 as margins approach long-term 25% targets. BRAG trades at 4x our 2024E EBITDA, but we see shares rerating towards peers at 5-10x as Bragg continues delivering results and increasing investors’ conviction in this EBITDA ramp,” concluded the analyst.
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