Stride Gaming PLC (LON:STRST): The UK government has raised remote gaming duty (RGD) from 15% to 21%. This was better than recent rumours of 25%, but 1% higher than market expectations of 20%. With implementation from October 2019 (rather than April), we raise our FY19e EBITDA by 5%. However, assuming no mitigation, we lower our FY20e EBITDA by £3m to £14.5m. While regulatory pressures are likely to remain a feature of the UK gaming sector, Stride is the number three online bingo-led operator and should benefit from its strong market position. The balance sheet is robust (£20m net cash) and, despite the increased taxes, we expect strong cash flow through synergies and strategic growth. The stock has fallen 58% this year and trades at depressed levels of 3.6x EV/EBITDA and 5.8x P/E for CY19e.
21% RGD to commence in October 2019
The government’s budget has provided long-awaited clarity on remote gaming duty, which will rise from 15% to 21%. This is marginally higher than the widely expected 20%, but a better result than recent rumours of 25%. The increased duties will affect all online gaming operators (not sports) in the UK from October 2019, but at least the sector now has a degree of certainty. Other ongoing regulatory pressures include social responsibility, anti-money laundering, source of funds, etc. All this is likely to lead to a continued market shake-out, with dominant players set to benefit. We note that as the third largest online bingo-led operator in the UK, Stride is very well positioned.
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