Redeye updates on Gentoo Media following Q3-results where we have made limited changes to estimates and the company looks set to deliver continued solid performance in Q4. Following the split up of the group, the cash generation is now very strong and creates potential for improved shareholder remuneration in the coming years.

Q3-results in line with preliminary announcement

Gentoo reported revenue of EUR30.4m and EBITDA of EUR14.6m which was in line with the preliminary results announced on 25 October. The outcome was also close to our forecast ahead of the preliminary results announcement where we expected topline of EUR31.4m and EBITDA of EUR15.1m. The company stated that player-friendly sports results impacted revenue negatively by around EUR1.5m, suggesting that the outcome would have been above expectations with a normalized sports win margin. FTD intake was stable YoY, with growth in publishing while paid saw a decline. Gentoo further highlighted that value of deposits was up 36% YoY, as it continues to focus on high-value FTD markets.

Evolution

Better Collective

Kambi Group

Gentoo Media

* Growth potential is attractive, but it will be challenging to achieve 5x growth in 10 years despite double-digit growth prospects.
* Highly fragmented online casino affiliate market, indicating intense competition and potential pressure on market share.
* Potential risk of disruption due to dependence on Google for search traffic, with some sites experiencing traffic loss.
* Significant regulatory exposure, as affiliates are both directly and indirectly impacted by online gambling regulations.
* Products do not contribute to the greater good, as online casino is purely recreational and can potentially be harmful to users.

* Strong recurring revenue model with 90% of sales from revenue-share and fixed fees, enhancing business stability and predictability.
* Asset-light business model with strong operating leverage and high ROIC, allowing for efficient scaling without costly reinvestment.
* Successful geographic expansion into new markets, including South America and North America, demonstrating adaptability and growth potential.
* Diversified revenue base across products, regions, and customers, reducing risk and enhancing operational stability.
* Strong competitive advantages in certain regions, particularly with ranking sites like AskGamblers that benefit from network effects through user-generated content.

* Lack of consistent earnings growth, with EPS growth not maintaining above 10% over the last five years and unstable growth over the past decade.
* Negative shareholder equity after split-up, but likely fixed in a few quarters given strong earnings.
* High debt-to-equity ratio exceeding 40%, potentially increasing financial risk and limiting flexibility during economic downturns.

* Strong profitability with gross profit margin over 40% and operating margin above 20%, indicating pricing power and operational efficiency.
* Consistent outperformance in Return on Equity (ROE) and Return on Assets (ROA) compared to industry averages, suggesting effective capital utilization.
* Robust financial health with current assets 1.5 times greater than current liabilities and manageable debt levels relative to cash flow.
* High-quality earnings demonstrated by strong Operating Cash Flow and Free Cash Flow conversion rates, exceeding 80% over the past five years.

* Lack of a clear dividend policy, potentially limiting immediate shareholder returns.
* Limited use of share buybacks or stock-based acquisitions, which could be valuable capital allocation tools.
* Absence of sustainability-related performance incentives in executive compensation plans.
* Limited information available on executive severance packages and certain aspects of compensation structure.
* Potential room for improvement in female representation in leadership positions.

* Strong leadership with CEO Jonas Warrer demonstrating a clear long-term vision, deep industry knowledge, and a track record of success in value creation.
* Lean organization with a well-functioning management team, consistently delivering on promises and maintaining stable profitability.
* Effective capital allocation strategy, focusing on organic growth and strategic acquisitions, resulting in strong returns on investment.
* Transparent and timely investor communication, with consistent messaging and focus on long-term business value.
* Significant insider ownership, including the CEO and board members, aligning management interests with shareholders.

EURm	2022	2023	2024e	2025e	2026e
Revenues	61.8	89.1	124.7	149.2	171.6
Revenue Growth	37.3%	44.1%	40.0%	19.6%	15.0%
EBITDA	29.5	40.3	59.8	72.1	85.5
EBIT	21.7	27.8	41.4	54.3	66.7
EBIT Margin	35.1%	31.2%	33.2%	36.4%	38.9%
Net Income	19.1	12.5	26.6	37.8	50.2
EV/Sales	6.3	4.5	2.9	2.4	1.7
EV/EBITDA	13.1	9.8	6.1	4.9	3.4
EV/EBIT	17.8	14.3	8.9	6.5	4.4

Q3-results as expected and unchanged guidance

Strong cash generation after split up

Limited estimate changes, increased valuation range

Key financials

Q3-results in line with preliminary announcement