Analyst: Inspired Entertainment “increasingly attractive”

April 16, 2024 2:54 PM
  • David McKee, CDC Gaming Reports
April 16, 2024 2:54 PM
  • David McKee, CDC Gaming Reports
  • Latin America
  • United States
  • Brazil

Gaming manufacturer Inspired Entertainment is reportedly “back on track,” according to a Tuesday investor note by Barry Jonas of Truist Securities. Jonas was unfazed by news of a new Securities & Exchange Commission probe of Inspired related to a major earnings restatement last year, saying it was “presumably to verify the matter has been resolved appropriately.”

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According to Inspired management as paraphrased by Jonas, the second half of the year will bring stronger portfolio growth, particularly in terms of Inspired’s online offerings. Still, Jonas shaved two percent off  his cash-flow projections for 2024.

The analyst wrote that, following a drop in Inspired’s share price, its “valuation looks increasingly attractive.” He reiterated a $13-per-share price target (the stock was trading for $9.07 a share at the time) and a Buy rating.

Belated fourth-quarter results showed that Inspired had $27 million in cash flow, seven percent better than Wall Street expected. Revenue was $78 million, six percent higher than both Jonas’s forecast and Wall Street’s consensus. Adjusted revenues were slightly up, “excluding low-margin hardware sales,” before currency fluctuations were taken into account.

Looking ahead to 2024, management was pleased with its interactive revenue growth. It “noted momentum in interactive has continued into the new year; last week was the highest revenue week in company history.”

One cause for optimism was prospects in Brazil and expansions in Latin America. The company’s ongoing online performance and a hefty backlog of equipment sales were seen as driving year-over-year growth for Inspired as well.

Inspired executives “noted Virtuals were at an inflection point and growth could be supported from new-product momentum” through the second half of this year. They said they were “comfortable” with a cash-flow projection of $105 million for 2024, “reflecting modest Y/Y growth.”

The execs also professed themselves satisfied with the company 2.5-times-cash-flow leverage, having paused most stock buybacks in the last two quarters, while earnings were restated. Inspired has $13 million in reserve for stock repurchases. The company has $40 million in cash on hand against $296 million in debt.

Although Inspired leadership said it would resume stock buybacks at some point, priorities were identified as growth of both Inspired’s bottom and top lines. Mergers and acquisitions were described as “currently further down the totem pole.”

Looking at specific divisions, virtual sports experienced a sharp decline, with revenues off 12 percent to $13 million. Executives “noted it’s important to keep the life cycle in context, given that the popularity of Virtual Sports accelerated dramatically during COVID.”

They remained “bullish” on the product, predicting a return to form in the autumn, propelled by NBA- and NFL-themed offerings.

By contrast, online revenues shot up 48 percent, reaching $8 million. The last quarter of the year “is usually a strong quarter for the segment, given holiday-themed games in its portfolio perform well.”

Management said it was taking heart in the early steps taken by its hybrid-dealer product, developed in conjunction with BetMGM. It expected to launch in additional markets with new partners as the year progressed.

Gaming revenues were a mixed bag, with revenue down four percent to $36 million, but cash flow up six percent, achieving $15 million. Inspired also chalked up $3.5 million in sales of lower-margin gambling terminals “as products sold will secure longer-term recurring revenue streams.”