Citi reaffirms buy rating on Evolution Gaming

Citi has reaffirmed its Buy rating on Evolution Gaming Group AB (EVO:SS) stock, maintaining its price target of SEK1,500. Ahead of the company’s third-quarter earnings announcement on 24th October, Citi shared positive insights into the company’s expected performance, projecting steady growth across key areas. Evolution Gaming, a leader in live casino technology, continues to expand its market presence despite foreign exchange headwinds and competitive pressure.

EBITDA margins to improve slightly

Evolution Gaming is expected to report a slight improvement in its EBITDA margin for the third quarter of 2024, projected at 69.4 percent, up from 68.7 percent in the second quarter. This figure is within the company’s full-year guidance of 69-71 percent, reflecting a stable financial performance. Citi’s analysis suggests that the company’s continued operational efficiency and market expansion are driving the improvement in margins.

Slot performance rebounds in Europe and US

One of the key areas of focus for Evolution Gaming in recent quarters has been its slot game segment. After a dip in performance during the second quarter, the company’s slot rankings have stabilised in Europe and shown marked improvement in the US by September. According to Citi’s projections, slot revenue is expected to see a modest sequential increase of three percent, aligning with consensus estimates.
Evolution’s game releases also experienced a four percent year-on-year growth during the third quarter, with further acceleration anticipated in the fourth quarter. This uptick in game development and releases is expected to bolster future revenue growth.

In addition to slot performance, Evolution Gaming’s live casino segment remains a significant growth driver. Citi forecasts an impressive 18 percent year-over-year growth in live revenue for the third quarter of 2024, which is two percentage points above consensus estimates. The company’s lead over competitors in the live casino market continues to expand, positioning it as the dominant player in the sector.

Moderate foreign exchange impact

Foreign exchange fluctuations remain a challenge for Evolution Gaming, though the impact has lessened compared to earlier in the year. Citi anticipates a three percentage point foreign exchange headwind year-over-year for the third quarter, slightly better than the 3.5 percentage points reported in the second quarter. This marginal improvement indicates a stabilising currency environment, which could support future earnings growth.
With buybacks conducted during the quarter and the share count updated accordingly, Evolution Gaming looks poised for a robust third-quarter performance.

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