Gaming Realms

(GMR:AIM)    39.93p

Gain to date: 26.4%

We flagged AIM-listed games distributor Gaming Realms (GMR:AIM) as an underappreciated growth story on 25 April with the company projected to more than double pre-tax profit over the next three years. Pleasingly, the market appears to be recognising that potential.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

The company delivered a robust first-half trading update (30 July), which saw revenue and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) increase 18% and 21% respectively.

Core content licensing revenue grew 28% year-on-year as the company partnered with 22 new clients and launched seven new Slingo games.

In North America, Gaming Realms launched its Slingo portfolio with market leading fantasy sports betting company Fanduel (owned by Flutter Entertainment (FLTR) in Pennsylvania and Connecticut.

Slingo was also launched with Atlantic Lottery Corporation and Fanatics in New Jersey, Michigan and Pennsylvania.

Demonstrating the growth potential from partnering with large gambling groups operating across multiple territories, Slingo went live in Italy with Pokerstars, another Flutter brand.

Management said the ‘strong’ momentum experienced in the first half provided the board with the belief the company is on track to meet full year expectations.

An important part of the investment case is the ability of the company to convert an increasing proportion of revenue into profit and free cash flow as costs remain relatively fixed.

It is therefore encouraging that Gaming Realms completed a capital reduction on 1 August which lays the ground for the firm to pay dividends and/or buy back shares.

Although there is no current intention to undertake any dividend or share buyback programme, Peel Hunt forecasts the business will generate almost £30 million of free cash flow from 2023 to 2026, suggesting scope for enhanced shareholder payouts.

WHAT SHOULD INVESTORS DO NOW?

Although the shares have made solid gains since late April, we believe the company remains in the early stages of its growth trajectory suggesting further price gains are on the cards. We stay positive on the shares.