Margins recovered faster than expected

Three reasons for positive EPS revisions

U.S. a market with big potential

Q3 margin beat shows U.S. potential
Catena Media delivered sales for Q3 in line with our estimate, but EBITDA and EBIT margins 1.6 and 1.9 percentage points above our assumptions, respectively. We argue that this shows the potential in the U.S., where Q2 saw a heavy investment phase in order to be ready when New Jersey went live with legalized sports betting in August. We also noticed growing revenues from the sports betting in the quarter compared to Q2. Part of that can be explained by favourable sports results in the quarter, but we assumed the hangover from the World Cup would be higher, suggesting a good start for sports betting in the U.S.

Scalability, slower M&A pace & lower dilution
Our estimate revisions are threefold: 1) higher expected scalability in the U.S. than previously thought, 2) slower M&A pace, leading to lower D&A assumptions, 3) strong stock performance, lowering the expected dilution from earn-outs in the coming years. In total, this leads to positive EPS revisions of 13% and 15% for ’19e-’20e, respectively. The confidence in our estimates has increased, as we have looked more into the numbers for the expected U.S. expansion. We think slower growth and challenging regulatory changes in Europe can be offset by the contribution from the U.S. journey – more on that further on in this research update.

ABGSCe sales from U.S. amount to EUR 32m in 2020e
Our current estimates include a sales contribution from the U.S. of EUR 32m in 2020e. We also expect higher EBITDA margins in the U.S., giving a boost to group margins in the coming years. The stock has performed well of late, advancing 55% in the last month. On ABGSCe the valuation corresponds to EV/EBIT and P/E of 13.8x and 15.3x for ’19e, going down to 10.6x and 12.4x for ’20e. The FCF yield amounts to 7.8% in ’20e, when the lion’s share of the current earn-outs will be paid.