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Aspire Global
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==Business overview<ref name=":0" />== The players are individuals who visit the operator’s site to game. A platform is the technical infrastructure for an online gaming site. Typically, the large online gaming operators usually use their own proprietary systems, and the small to mid-sized operators use third-party platforms. As shown in Exhibit 14, AG’s scale is smaller than peers including Evolution Gaming, International Game Technology and Scientific Games. However, as shown below, AG continues to build scale by winning new clients, including the large, tier one clients (such as Betfair and William Hill) due to its leading technology platform in new geographies, while increasing spend from those customers. Online gaming operators provide the B2C offering, for example sports, casino or bingo, to players. In regulated markets, operators must have access to a licence. Game developers provide games to the platforms; the games are typically developed for ‘plug and play’ into the platforms, allowing operators to customise the offering and branding quickly. ===Core=== Core is AG’s proprietary platform and managed services, which comprise all the technical, regulatory, and administrative requirements of operating an iGaming brand. The technical platform can be offered in isolation or combined with the range of managed services. From a technical perspective, the platform provides everything from back-end configuration to the user interface and integration with third parties, eg content providers. From an operational perspective, the managed services cover everything from regulation and compliance including licence administration, payment processing and risk management, CRM including data analysis and business intelligence, customer support and player value optimisation. Use of the platform means that operators do not need to invest resources in developing/running their own technology or full-service platform, leading to a faster and more efficient route to market and ongoing operating cost efficiencies with a high level of professional services. While all operators have different cost structures given different product offers, market positioning, etc, Edison Investment Research highlights that bet-at-home’s ‘other’ costs (ie excluding duties, marketing, and personnel costs), which includes expenses for platform, represented c 16% of GGR. AG’s management has estimated that the full product suite of platform and managed services can lead to operating cost savings of 20% for the operators. The platform is very ‘sticky’, given its access to certifications/licences and the analytical tools available. In addition, management claims that the platform’s up-times are higher than those of competitors. Hence, once a client is on board, there would have to be a very good reason for it to leave given the inconvenience of changing the licence/certification, having to integrate with another provider and the loss of analytics. The relatively consistent increase in the number of partners/brands that use the platform (see Exhibit 5) provides proof of AG’s competitive positioning. The key services include: * Licences and platform certifications in regulated markets: AG has gaming licences in regulated markets including the UK, Denmark, Ireland (sports betting), Sweden, and Malta. The Maltese licence covers all .com markets. AG is in the process of applying for a sports betting licence in Germany. When an operator joins and uses AG’s Core platform, it is able to access all of the licences and therefore does not need to apply for its own licence in a country, which can be time consuming and expensive. In addition, the Core platform is certified in other regulated countries including the US, Mexico, Colombia, Portugal, and Russia so that operators with licences in those countries can take advantage of AG’s technological expertise. * Compliance and regulations: AG’s in-house regulation and compliance teams monitor all operations and keep up to date with changes in regulations to ensure the platform is compliant with all required laws and regulations. It also provides ongoing training, regulatory updates, and marketing guidelines to partners. * Data analysis and intelligence: customers are provided with on-demand data analysis, business intelligence and analytical tools that enable them to monitor their own performance and help them maximise player profitability with the use of sensitivity analysis on customer acquisition costs and potential changes in marketing strategy. * CRM: AG believes its recently launched Aspire Engage is the most advanced CRM tool in the market. It allows operators to market to their players on any device in real time with relevant attractive promotions according to pre-defined segmentation. The CRM services offered include campaign management, player segmentation and retention analysis, tools to enhance customer conversion, the management of bonuses and promotions, and tools to manage responsible gaming. * VIP management: AG’s most experienced employees work closely with the operators’ most valued customers to improve customer loyalty. * Payment processing and risk management: AGs platform is integrated with a number of alternative payment providers and solutions, other than credit and debit cards, to provide seamless and safe management of player deposits and payouts. Alternate payment providers include Worldpay, PayPal and Adyen as well as local services including Trustly in Sweden, Neteller, Skrill and Paysafecard in the UK, and Giropay and Sofort in Germany. With respect to fraud management, the platform has quick Know Your Customer (KYC) processes and a highly secure fraud prevention scheme. * Customer support: AG provides unique tools for its operators/clients to communicate with their players. Those tools have real-time data so the information will be updated at all times. Since the IPO in 2017, management has continued to invest in the platform to improve the speed, availability, and reliability of the underlying technology, as well to improve the breadth and quality of the services offered. In 2018, the platform moved from a pure casino focus to adding sports betting, with the aim of targeting new audiences and partners. The Core platform generates revenue from three sources: * Set-up fee: a fixed set-up fee is charged immediately after the signing of an agreement with a new client. In FY20, these represented less than 10% of AG’s Core revenue. * Mark-up on supplier services: AG charges a moderate mark-up on charges for services provided by third parties such as fees of games providers and payments service providers. In FY20, mark-ups represented 15–20% of AG’s Core revenue. * Split of net gaming revenue (NGR): NGR is gross gaming revenue (ie total bets wagered by customers less their winnings) less any bonus and jackpot contributions. When a partner brand launches on AG’s platform they both share the NGR. To limit downside risk, a minimum platform fee is charged, which is automatically replaced by a share of revenue once it has been exceeded. In FY19, this represented more than three-quarters of AG’s Core revenue. Management believes its greater focus on a revenue share model than its peers aligns AG’s interests better with those of its customers. As AG is the licence holder, it receives the revenue direct from the players of the games and then distributes the partner’s share of NGR, which is recognised as a royalty payment within distribution costs. This is different from many peers that receive a fee for proving the platform. Core’s financial performance At 57% of group revenue (GGR) and 60% of group EBITDA in FY20 (56% and 57%, respectively on a pro forma basis), Core is AG’s most important segment from a financial perspective. Its GGR revenue has grown from €30.0m in FY16 to €92.7m in FY20, a CAGR of c 33%, during which time EBITDA increased from €7.2m to €16.1m, a CAGR of c 23%. Core’s revenue growth has been driven by increasing the number of clients and brands that use the platform, and the revenue earned from each. At the end of FY20, the platform had 42 clients and 86 brands versus 22 clients and 44 brands at the end of FY16. In our forecasts Edison Investment Research assumes the number of brands operating on the site increases by 4–5 pa, and average revenue per brand increases by 5% pa, resulting in c 10–11% organic revenue growth to €101.9m in FY21 and €112.9m in FY22. The EBITDA margin has trended down from 23.9% in FY16 to 17.4% in FY20, due to management’s deliberate focus on increasing exposure to regulated markets, in which operating costs are higher and AG provides more favourable terms to clients in these markets versus unregulated markets. Despite having higher operating costs, increased regulation provides greater certainty about the operating environment for operators, excluding competition issues. Edison Investment Research assumes the EBITDA margin is stable versus FY20 in our forecast years, as management expects increased scale and greater automation to offset the ongoing shift to regulated markets. ===Games=== AG’s Games business was formed on the acquisition of Pariplay, consolidated from 1 October 2019, for €13.3m. Pariplay operates a leading global game aggregator platform and develops its own proprietary online games. The acquisition was strategically important as it provided AG with access to an important part of the iGaming value chain, games creation and aggregation and, significantly, Pariplay gained an iGaming licence for New Jersey, which is crucial for AG to grow in the strategically important US market. The attractiveness of Pariplay to online gaming operators is that as a hub, it provides fast and simple access to a vast collection of online games, increasing by 15–20 new titles per week, created by leading games creation companies. As Pariplay was integrated, it was expected to deliver both revenue synergies (cross-selling of AG’s and Pariplay’s games) and cost synergies (integration of platforms and back office, etc). At the time of the acquisition, Pariplay offered more than 2,000 games from over 30 vendors, as well as 56 proprietary games. The client base of c 60 operators included Svenska Spel, 888 Holdings.com, William Hill and Entain. Management has focused on increasing the quality and quantity of the games offered, as well as improving functionality and features, so that Games has gained more customers in more geographies. By the end of FY20, the number of third-party games available had increased to more than 3,000 from 42 vendors including Evolution Gaming and Netent, and the number of proprietary games had increased to 113 following a steady release of six new games per quarter. New customers since acquisition include leading names such as BetVictor and bwin, and in more new countries such as Portugal, Romania, Switzerland, and the United States. Operational focus has resulted in strong financial performance, with revenue and EBITDA at all-time highs in Q420. In FY20, revenue and EBITDA increased to €16.0m and €4.2m, growth of 52% and 144% respectively from FY19 pro forma revenue of €10.6m and EBITDA €1.7m. The EBITDA margin increased from 16.9% in Q419 to 26.8% in Q420, and from a pro forma FY19 margin of 16.2% to 26.0% in FY20, significantly higher than AG’s group average of 16.7%. Using Pariplay’s FY19 pro forma results, the acquisition price of €13.3m represented an EV/sales multiple of 1.3x and EV/EBITDA of 7.8x. Strong financial performance in FY20 brought the multiples down to 0.8x and 3.2x, respectively. ===Sports=== The Sports sub-segment was formed on the acquisition of BtoBet, a leading sportsbook platform provider, from 1 October 2020. The company had c 100 employees, mainly based in Italy and North Macedonia. The acquisition was strategically important as adding sportsbook technology meant that AG now has a presence in all the major areas of online gaming, and the presence in sports is important given its ambitions to grow in the US, which is expected to deliver significant growth in the future. Following the acquisition, management indicated that its existing sportsbook business will be migrated to BtoBet, and that Pariplay’s games and aggregation could be offered to its clients. When the acquisition was announced, BtoBet had 32 operator clients in Europe, Latin America, and Africa, but with a greater presence in emerging markets than AG had historically. Under AG’s ownership, BtoBet has made an impressive start, launching six new partner brands, and signing five new partners in Q420. These included a partnership with Betfair in Colombia in October 2020. In November, it expanded into Russia by signing a platform deal with Russian National Lottery’s Operator Sports Lotteries, followed in December by a partnership with William Hill in Colombia. In FY20, Sports contributed revenue of €2.2m and EBITDA of €0.6m, an EBITDA margin of 29% during the final quarter. On a pro forma basis, FY20’s revenue of €6.8m and EBITDA of €2.1m represented growth of c 55% and c 39% from FY19’s €4.4m and €1.5m, respectively. With a higher EBITDA margin of 29.0% than the group average, its growth will help to boost AG’s overall EBITDA margin. Edison Investment Research forecasts that AG adds 20 new partners in FY21, which is consistent with the five new partners signed, six new partners launched in Q420, the first period of ownership, and a further 15 new partners in FY22 taking the total number of partners to 73 by the end of FY22. In addition, Edison Investment Research assumes 10% growth in revenue per partner in each year. These are estimated to produce revenue of €11.5m in FY21 and €15.9m in FY22. Following more stable margins in FY21 versus FY20 as the business invests, Edison Investment Research assumes good growth in margin to 35% in FY22 as the business benefits from better operational leverage. The total consideration of €37.4m for BtoBet comprises initial cash of €15.8m, a deferred payment (after 12 months) of €4.7m and contingent consideration (two years after closing) of up to €16.9m. It represented an FY20 EV/sales multiple of 5.5x and EV/EBITD multiple of 17.9x. ===B2C=== The B2C segment includes AG’s proprietary online gaming sites, which it markets directly to online customers. The most notable brand is Karamba. The B2C brands use AG’s Core platform, and therefore benefit from the scale economies that B2B customers enjoy when they become a client. As well as providing profitable growth to AG, the business provides valuable insight into wider product development in iGaming. The long-term growth strategy has been to enter new verticals and thus present the opportunity to attract new online customers. B2C’s revenue is the online game’s NGR. The B2C segment bears the expenses of marketing and customer acquisition. It also pays technology platform fees to AG’s Core. In March 2021, the company announced the segment is subject to a strategic review, with the aim of determining how best to accelerate growth. One possible outcome of the review is a disposal of the B2C segment. B2C’s KPIs Below Edison Investment Research highlights the annual and quarterly progression of four of B2C’s main KPIS, rebased to 100 in Q117 to aid comparability, and marketing expense relative to net gaming revenue (NGR). Since FY17, the number of active users has increased at a CAGR of c 10% from 138.1k to 182.9k at the end of FY20, having peaked at 197k at the end of FY19. The value of transactions has increased at a CAGR of 6%, from €1.18bn in FY17 to €1.41bn in FY20, peaking at €1.58bn in FY18, implying a lower average spend per new customer. Growth in FY18 was driven by more efficient marketing and CRM, as well as the launch of sportsbook ahead of the 2018 FIFA World Cup. In FY19, ongoing innovation and the entry into new markets was not enough to offset the tough comparative from the World Cup, and a change in regulations in the Netherlands and the UK in the fourth quarter which negatively affected growth. Regulatory changes continued to affect its growth into the start of FY20, before the beneficial effects on online gaming from COVID helped the business grow all KPIs y-o-y. Through FY20, there has been improving momentum, ie y-o-y growth in the value of transactions and the level of deposits, albeit with fewer active players but on an improving trend, implying greater spend per active customer, following significant investment in marketing in key regulated markets, the UK, Ireland, and Denmark. B2C’s financial performance In FY20, B2C represented 31% of group revenue (GGR) and 23% of group EBITDA, with an EBITDA margin of 12.1%. B2C’s revenue (GGR) has grown in every financial year since FY20 and net revenue, ie after VAT, has grown at a slightly lower CAGR of 12%, which reflects increasing exposure to regulated markets where taxes tend to be higher. In our forecasts Edison Investment Research assumes low single-digit growth for the number of active users and c 5% growth for average revenue per user, producing 7% growth in total. Our forecasts assume a stable EBITDA margin of 12.1%.
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