Benzinga | Nov 9, 2021 04:47PM EST

BRAG: Delays in German Regulation Added to Q3 Revenues But New Markets Are Driving Future Growth

By Lisa Thompson

(NASDAQ:BRAG)

READ THE FULL BRAG RESEARCH REPORT

Bragg (NASDAQ:BRAG) reported Q3 revenues and earnings that beat expectations primarily due to a less than smooth implementation of German regulations on online casino games. Despite having a start date of July 1, 2021, Germany managed to issue no licenses for operators by that date so gaming continued without them. Bragg (and its lawyers) went back and forth with customers (and their lawyers) allowing those who had at least thought of applying for a license to continue up until September 30th. On that date, all customers who had not shown proof of a license application or been granted one, were IP blocked by Bragg. As a result, Q3 revenues came in much stronger than expected and the company labeled all revenues from the 30 or so customers that were subsequently IP blocked, as non-recurring. It generated 4.4 million in non-recurring revenues rather than the 1.9 million expected as shown below.

With a strong Q3 and better performance in ongoing operations, the company raised it 2021 revenue guidance to 55-56 million (US $65-66 million) and adjusted EBITDA to 6.6-6.8 million (US $7.8-8.0 million), compared to its previously provided revenue and adjusted EBITDA full year outlook of 49 million (US $57.8 million) and 5.4 million (US $6.4 million), respectively.

This gives a Q4 revenue range of 12.4-13.4 million (US $14.4-$15.5 million) and adjusted EBIDTA range of 940,000-1.1 million (US $1.1-1.3 million).

In addition, Bragg raised its full year 2022 revenue guidance to 59-61 million (US $70-72 million), compared to the initial expected range of 54-56 million (US $63.7-$66.1 million) which was provided on August 11, 2021 and provided adjusted EBITDA guidance of EUR 6-7 million (USD $7.1-8.3 million).

Investing in Bragg is a waiting game. Waiting for the German decline to anniversary so true growth can be evidenced. Also waiting for events that will drive the stock which include: the closing of the Spin acquisition, allowing the company to launches into US states in which Spin is licensed, as well as the granting of the UK license. Both events should happen shortly however. While current business continues to grow, the big upside the first half of next year should come from the UK, the 5.5 billion market where it is impossible to predict Bragg's revenues.

Trading at an enterprise value of US$184 million, Bragg is trading at only 3.8 times enterprise value to 2021 estimated sales and is priced well below its peers as shown below. On average igaming companies are trading at 5.7 times EV/estimated 2021 Sales. Using this industry comps and applying it to our 2021 revenue forecast of 55.6 million (US$64 million) for Bragg, we reach an enterprise value of $367 million, a market value of $391 million. Using the fully diluted share count of 22.6 million shares, we get a price per share of approximately $17.30 in US dollars.

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