Jefferies initiated coverage of Gamesys and 888 with a ‘buy’ rating on Wednesday as it took a look at the gaming sector.
The bank said negative future growth is currently priced in for both companies, yet both are set to benefit from: the migration of retail to online; diversification of product and geographies; utilisation of surplus cash in M&A; and proprietary software platforms to drive consolidation and efficiency.
Jefferies has a 1,930p price target for Gamesys and a 380p target for 888.
As far as Gamesys is concerned, it said that despite a strong recent run in the share price, which is up around 75% in 12 months, there is scope for further re-rating.
“Gamesys is a scarce, scaled, differentiated online gambling asset in a consolidating sector,” Jefferies said. “Proprietary software platforms, strong cash flow and a deleveraging balance sheet suggest bolt-on acquisitions and/or cash returns could add further value.”
On 888, it said that diversification by product (e.g. sports) and geography (USA) will drive a higher growth rate and positive re-rating over time.
“Proprietary software across all gambling verticals offers a compelling consolidation platform, with a net cash balance sheet ($77m) and strong free cash flow providing the acquisition firepower. Despite a more than 100% increase in the share price over the last 12 months we see upside from forecasted ongoing attractive cash flow generation.”
