LeoVegas daily chart

LeoVegas – Analysis

Leovegas is a Gametech company specializing in mobile casino and is listed on Nasdaq main market Stockholm and the Mid Cap list. Through clever marketing and an early presence in the mobile gaming space the revenues have increased rapidly almost from the start, with about 60 percent every year, for the last five years.

The uncertainty surrounding gaming regulations and increasing taxes, laid on the industry, has struck the sector hard and many stocks have gone down more than what is warranted. LeoVegas is one of them. The valuation of the company is now more than three times below the top(!), falling from 109 to as low as 24, in about fifteen months, and is now trading around 35 SEK. That despite high growth rates in revenues, cash flows and earnings during the same period.


Mainly three categories comprise the online gaming industry today. Casino, Sport and Poker. LeoVegas aims to become the market leader in the mobile casino category. The company has a global presence and their key market is Great Britain, a market that has drawn much uncertainty lately because of turbulence around increased compliance restrictions and increased gaming tax, from 15 to 21 percent. This is probably an overreaction, since the company is turning the business in UK around.


The P/E ratio stands at around 8 today which is very low compared to its History, having had a PE of over 30 at its highest. Profit margins are increasing steadily and slowly over time. Their stated financial target for 2020 is to have continued strong growth and strong margins. If their financial targets are met they will have a profit of about 8 sek per stock and a P/E of about 10 for that year. That is very attractive considering the Historic growth rates of 30% or more every year.


The company has matured a lot and now has economies of scale-advantages in place and games with solid user bases. The management has done skillful marketing in the past and their brand is well-known today, with many returning customers.


Insiders on board

The largest shareholder and insider is Gustaf Hagman, who is also the CEO and founder of LeoVegas, owning eight percent of the company. He has been important to the business model and marketing strategy. And as the founder and CEO he has a big vested interest in seeing the company succeed, which is good for shareholders.

Technical analysis

Looking at the technicals the downside momentum of the stock has slowly exhausted itself over time. The stock has been building a solid base and an inverted correction base, for the last ten months, as can be seen in this picture:

LeoVegas daily Chart
Possible reversal forming and slowing downside momentum. Moving average crossover on the daily – Chart Provided by TradingView

RSI is increasing which makes it interesting technically. There has also been a moving average crossover of the 50-day moving average and the 200-day moving average. These are signs of accumulation and upside momentum.

Conclusion

As of today, september 22, I hold no position but watch the stock closely. The company has a lot of operating leverage, considering the fundamentals and infrastructure already in place after the branding and marketing process. That being said, my personal view is that the growth is still very high, and the valuation very low, which makes the stock attractive. When I write this, in September 2019, the stock price is around 35. That could easily double in the next 12-18 months and my price target is above 80 with the potential of more, with a time horizon of one to two years.

Disclaimer: I do not hold any stock in LeoVegas AB at the moment. All information found on this site ideas, opinions, predictions, commentaries are my own views that are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. I will not and cannot be held accountable for any actions you take as a result of what you read in here. I am not your investment adviser. Consult a licensed financial adviser before making any investment decisions.

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