Near-term headwinds from legacy business

…but US potential looks promising

Growth potential for FCF once earn-outs are paid

US performance solid but cuts in PPC spending
For the Q4 results on 7 February, we expect that the US has continued to add growth. However, on the negative side, we expect to see slightly lower growth from the European business. The main reason for this is lower than expected pay-per-click (PPC) revenue, stemming from the company’s decision to cut down on PPC spending due to prices continuing to rise. In all, this results in us lowering ’18e sales by 1.8% and EBIT by 3.3%.

God bless America
Perhaps the most exciting opportunity for the iGaming market is the legalisation of the sports betting market in the US. Naturally, Catena’s expansion should be seen as a long-term project. However, given its position as one of the market leaders in the affiliate segment and the great potential of overall the market, this could work as a share trigger. For example, in New Jersey alone, our assessment is that the sports betting market in 2019 will be worth =USD 200m in gross gaming revenue, which is twice the size of our initial projections in the spring of ’18. So far, DraftKings and FanDuel, which both already have a strong existing customer base, have dominated the sports betting market in New Jersey. However, as the market stabilises and competition increases, we assess that the amount of revenue that affiliates create will increase, as it should result in players comparing the various offerings.

’20e FCF yield of ~10%
On our estimates, Catena Media is currently trading at a ’19e EV/EBIT of 11.2x, and when the lion’s share of earn-outs is paid, the FCF yield amounts to ~10%.

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