Noble Capital raises target price for Esports Entertainment following 2Q revenue boost

Analysts at Noble Capital raised their price target for Esports Entertainment Group Inc. ((NASDAQ:GMBL) to $20 from $11 per share and repeated an ‘Outperform’ rating on the stock following the release on Tuesday of 2Q numbers from the licensed online gambling company focused on the growing world of professional video gaming.

The analysts said the target hike reflected the favorable environment for funding the group’s recently announced acquisitions and without the prospect of significant debt.

They noted that near current levels, Esports Entertainment’s shares trade at 4.9 times enterprise value based on their fiscal 2022 revenue estimate, or roughly 50% below average M&A transaction multiples. The new price target reflects a target multiple 6.5 times, which is more in line with its peer group multiples.

READ: Esports Entertainment records 2Q sales of $2.4 million for first quarter of revenue generation

Looking at the 2Q numbers, the Noble analysts said that total revenues of $2.36 million were in line with their estimate of $2.2 million, while the group’s adjusted EBITDA loss of $3.4 million was slightly better than their $3.8 million loss estimate. They pointed out that the quarter “had a lot of noise with a significant amount of professional fees related to recent acquisitions and funding”.  

The analysts pointed out that Esports Entertainment plans to close on its acquisition of the Lucky Dino online casino in late February and, as a result, the group increased its full-year fiscal 2021 revenue guidance to $18 million to $13 million.

The analysts said: “Notably, we believe that there is upside surprise potential to that guidance. We are maintaining our fiscal 2022 revenue estimate of $70 million, which is in line with management’s guidance.”

The analysts pointed out that the esports company had $7.5 million in cash as of December 31, 2020, which included proceeds from the exercise of warrants. The company recently closed on a registered direct offering, which was priced at $15 per share for proceeds of $30 million.  As such, they added, the company has sufficient financial flexibility to close the $30 million acquisition of Lucky Dino.

The analysts noted that Esports Entertainment shares have risen 250% since lows achieved in November 2020. They concluded: “The increase in shares price has substantially increased the company’s financial flexibility to complete acquisitions with fewer shares than we originally expected. In addition, the rise in the share price improves the company’s ability to use its equity for future acquisitions.” 

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