Investors wanting to play the rapid growth in mobile gambling should seek out ‘mobile first’ stocks like Gaming Realms (GMR:AIM) and Nektan (NKTN:AIM) as well as companies with a multi-channel offering like Rank (RNK).
Mobile gambling is the primary growth driver in the online gambling market with an estimated compound annual growth rate of 27%. It’s expected to reach $19 billion and represent 40% to 45% of online gambling revenues by 2018.
Analysts at Edison say a ‘mobile first’ approach is a key determinant of success for business-to-consumer operators, such as Gaming Realms. The £60 million cap offers mobile-led gambling products specifically targeted at the casual gamer via its own in-house platform. Its brands include Spin Genie and Pocket Fruity and it recently acquired the popular US-based social gaming brand Slingo.
‘The mobile-led approach adopted by Gaming Realms appears to be already bearing fruit with 80% of funded players using mobile devices in [the first half of 2015], engaging in five times more sessions than desktop players,’ says Edison analyst Eric Opara.
At 24.6p, the stock trades on a 2016 enterprise value (EV) to EBITDA multiple of 9.1 times compared with the sector average of 12.6. It’s forecast to make a pre-tax profit of £5.8 million in 2016 compared with a loss of £2.8 million in 2015.
Nektan is a business-to-business software provider which has a strategic focus on mobile-optimised gambling. It has its own proprietary software platform, Evolve, and it’s signing up commercial partners in Europe such as The Sun. It also has a rapidly-growing mobile-based offering for US land-based casinos through a joint venture with Spin Games.
At 148.5p Nektan is currently loss-making and it’s still very much an early-stage business. It’s forecast to turn EBITDA positive in FY2016.
Rank, the Mecca Bingo and Grosvenor Casino owner, aims to be the UK’s leading multi-channel gaming operator. It has been investing in its digital offering and will move to a new platform in early 2016.
‘Improvements to Rank’s mobile offering are already bearing fruit. Grosvenor mobile actives were up 155% in FY15, while Mecca recorded gains of 49%. Across the entire digital product range, 65% of all customers have now played on mobile, up from 49% a year earlier,’ says Opara.
At 264.4p Rank’s pre-tax profit is expected to grow by 5.4% to £78 million in FY2016. Peel Hunt’s target price is 289p, implying 9% upside.