Below expectations in both business segments

Lowered expectations, especially for the operators

Acquisition of IPG added to estimates

Poor marketing execution and GDPR main challenges
Future Gaming Group (FGG) had a challenging Q2, with net sales of SEK 14.6 m (-24% vs. ABGSCe), mainly driven by weak performance in its Operator segment (-36% vs. ABGSCe). Marketing by sellers who were integrated into FGG this year has been insufficient, and FGG itself will now take over responsibility. The only positive from the weak performance of the operators is that the earn-out of SEK 22m did not materialize. EBITDA came in at SEK 3.9m (-50% vs. ABGSCe), driven by lower margins in the Lead Generation segment and higher group-wide expenses. Some customers had to stop doing business with FGG to be compliant with GDPR; these customers are up and running again in Q3.

Acquisition of IPG dampens cut to estimates
We have lowered our expectations regarding FGG’s operators substantially, in light of the report. We believe that a turnaround could take some time. The two operator brands owned by FGG are not well-known, because for a long time they did only affiliate marketing. In contrast, the acquisition of IPG is added to the estimates, which dampens the downward revision to the estimates for the group. To summarize, we cut the EBIT estimates by 29.5% and 18.2% for 2018 and 2019, respectively.

EV/EBIT valuation indicates a small premium
We think that FGG is best compared to our affiliate peer group, since most of its operating profit is generated in the Lead Generation business segment. With that said, our operator peer group is also of interest since some of the companies in that peer group have business segments within affiliate marketing. Given our estimates, FGG trades at an EV/EBIT premium of 6% and 7% for 2019 and 2020, respectively, compared with our affiliate peer group.

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