Q4 sector performance: a mixed bag

Live-casino offering to drive performance

Peer group valuation interval of SEK 20-39

PW from Kindred, reversed PW from William Hill
Early performance indications from the gambling sector have been a mixed bag. On one hand, we saw a profit warning from Kindred issued on 13 January; on the other, we had a reverse profit warning from William Hill issued on 7 January with some contradictions regarding the sports book margin. Kindred’s profit warning stemmed from a lower-than-expected sports book margin (8.1% vs 9.4%, Q4 ’18), mainly from France, FX headwinds and US expansion. William Hill, on the other hand, experienced an above-average sports book margin, better-than-expected US performance and tailwinds in its retail business, which in total led to the reverse profit warning.

Slight risk on sports book margin, offset by live-casino
We note that Enlabs, in comparison to Kindred, also experienced an above-average sports book margin for Q4 ’18 at 9.3%. However, the sports book margin can fluctuate depending on geographical exposure, and this view is bolstered by the fact that William Hill’s sports book margin saw a different outcome. We think the sports book margin risk will be offset by the added live casino offering from Evolution Gaming. The offering went live on Optibet in Estonia in Q2 ’19 and on Optibet in Latvia in Q4 ’19. Overall, we keep our estimates intact going into the Q4 report and expect the growth momentum to continue.

Peer EV/EBIT ’20e indicates SEK 20-39 per share interval
Looking at the EV/EBIT ’20e valuation in comparison to industry peers, Enlabs trades at a 6% discount to the peer group median. If we apply the low and high EV/EBIT ’20e valuation in our peer group to Enlabs, we see a valuation range of SEK 20-39 per share. The range increases to SEK 29-44 on EV/EBIT ’21e as Enlabs is expected to grow EBIT faster than our peer group. Long-term value creation will also be determined on Enlab’s potential to grow outside its
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