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Aspire Global
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==Financials<ref name=":0" />== ===Income statement: Improving profitability=== Since FY16 AG’s revenue has grown from €61m to €161.9m, a CAGR of c 28%, translating to a CAGR for EBITDA of 24%, from €11.4m in FY16 to €27.1m in FY20. The EBITDA margin has reduced from 18.7% to 16.7%. In December 2018, management introduced long-term guidance for FY21 of revenue of €200m and EBITDA of €32m. At the time of the IPO, AG’s management introduced guidance for FY20 of €120m, which it exceeded more than a year ahead of schedule. The key features of the income statement are: * Revenue: our segmental forecasts above produce group revenue growth of 16% in FY21 to €187.7m and 13% to €211.3m in FY22. Our FY21 forecast is lower than management’s guidance set in December 2018 of €200.0m. Edison Investment Research expects Games and Sport to produce the highest rates of growth, with Games 23% and Sports c 68% (proforma). * EBITDA: Edison Investment Research forecasts EBITDA of €32.8m in FY21 and €38.5m in FY22, growth of 15% on a pro forma basis in FY21 and 17% in FY22. Our forecast for EBITDA of €32.8m is greater than management’s guidance of €32.0m, as is the margin of 17.5% versus guidance of 16.0%. Edison Investment Research rationalises this by the recent acquisition of the higher-margin Games (26.0%) and Sports (29.0%) segments since management introduced its guidance. The cost drivers to the decline in group EBITDA margin have been the increase in distribution expenses relative to revenue offset by relative declines in admin. expenses and gaming duties. Distribution costs include the royalty payments, namely, the partners’ share of NGR of the Core segment and the marketing costs of the B2C segment. Distribution costs have increased due to management’s deliberate strategy to increase AG’s exposure to regulated and taxed markets, where operating costs are higher but more predictable, and it provides more favourable terms to partners than in non-regulated markets. Management is optimistic the continued focus on increasing exposure to regulated markets could be less of a drag on margins as increased scale following M&A and the introduction of more automated processes can offset the higher costs of regulated markets. Admin expenses include staff costs and professional expenses and have represented a good source of operational gearing and as AG grows this is likely to continue. In addition, gaming duties could increase relative to revenue given the greater exposure to regulated markets; however, the relative expense will depend on the mix and level of gaming duties in individual countries. * Tax: AG’s effective group tax rate in FY20 was 8.5%, which Edison Investment Research assumes will continue in our forecast years and beyond. The Maltese corporate tax rate is 35%; however, according to the Maltese tax regime a material portion of tax is refundable, which reduces the Maltese effective rate to 5%, and the group rate to 8.5%. * Associates: AG discloses its share of associate losses after tax, below profit after tax in the income statement. In our financial summary Edison Investment Research also highlights PBT with the inclusion of these operating losses. Edison Investment Research assumes a similar loss contribution of €2.0m from associates in FY21 before reducing to €1m in FY22. * Dividend: Edison Investment Research assumes AG will return to paying a dividend with a gradual build in the payout ratio to 40% for FY21 and 50% for FY22, which compares with management’s stated policy of distributing at least 50% of net profit after taxes. ===Cash flow: Expecting higher cash flow generation=== Between FY16 and FY20, AG’s free cash flow CAGR was 16%, up from €10.5m to €18.9m. The strong operating cash flow CAGR of 21% has helped to fund greater internal investment to develop the platform and services. Edison Investment Research forecasts relatively consistent operating and free cash flow generation in FY21 and FY22 mainly due to AG’s increasing profitability and the associated tax. Working capital typically represents a positive inflow as customers are required to make deposits ahead of bets. FY19’s operating cash flow was negatively affected by a tax settlement with the Israeli tax authority with respect to jurisdiction and transfer pricing amongst the group entities for the period 2008–2018. AG’s fixed capital intensity is low, with limited capex, whereas there has been a modest increase in the level of investment in intangibles, namely capitalised development costs, relative to revenue. In FY21, AG is due to make its first deferred payment for the acquisition of BtoBet of €4.7m. ===Balance sheet: Capital light and limited net debt=== AG has a robust balance sheet with a small net debt position of €5.2m at the end of FY20, excluding client cash (€6.0m) and IFRS 16 lease liabilities (€2.5m). Due to the nature of AG’s business and its recent acquisitions, the main non-current assets on the balance sheet are intangible assets (€38.5m) and goodwill (€28.9m), a total of €67.4m from a total asset base of €144.3m. The other significant non-current asset is a related party loan from NeoGames, which shares two board directors with AG, that totalled €14.5m at the end of FY20. The loan could be worth up to €18.0m depending on exchange rates when it is due to be repaid to AG in March 2022, including the further interest accrual of €3.5m. Edison Investment Research conservatively, includes a lower estimated interest accrual of c €3m. When repaid, the funds will be used to replenish AG’s cash balances, which in the interim, along with one-year c €10m bridging loans from major shareholders, are funding the April 2021 €27.9m bond maturity. The main current assets at the end of FY20 were cash €28.7m (including client cash of €6.0m, which Edison Investment Research excludes from our definition of AG’s cash position) and trade receivables of €13.2m, which are typically money owed by payment processors that remit funds to AG on behalf of the players. At the end of FY20, the most significant near-term liability was the April 21 bond maturity and accrued interest of €27.9m, which is being funded as highlighted above. In addition, there was total deferred and contingent consideration for recent acquisitions with repayment dues of €4.8m in FY21 and €17.7m in FY23, shown in the cash flow above.
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