NeoGames iLottery Growth Could Be Better Bet Than Sports Wagering, Says Analyst

Posted on: December 14, 2020, 08:33h. 

Last updated on: December 14, 2020, 11:47h.

NeoGames S.A. (Nasdaq:NGMS) is fresh on the gaming equity scene, quietly going public last month. But the stock is already gaining favor among Wall Street analysts.

NeoGames stock
NeoGames went public on Nasdaq last month. Analysts are already bullish on the iLottery name. (Image: Nasdaq)

On Monday, Truist analyst Barry Jonas initiated coverage of the Israeli provider of iLottery solutions and technology with a “buy” rating and a $28 price target. Stifel’s Steven Wieczynski chimed in with the same rating and a $27 forecast. The average of those estimates, $27.50, implies upside of 36.13 percent from where NeoGames closed last Friday, and that bullishness is enough to have the stock higher by 6.40 percent in early trading today.

Online lotteries aren’t grabbing headlines on par with internet casinos or sports wagering. But that lack of press belies massive growth opportunities for companies like NeoGames.

NeoGames, in our opinion, is the ultimate growth story within the worldwide lottery segment, as we estimate NeoGames will grow earnings before interest, taxes, depreciation and amortization (EBITDA), on average, around 30% for the next three years,” said Wieczynski in a note to clients.

NeoGames went public on Nov. 18 and entered Monday with a loss of 7.64 percent over that period. The company’s market capitalization is around $495 million, putting it firmly in the small-cap territory while indicating there’s ample room for upside.

Familiar Catalysts

NeoGames was spun-off from online gaming technology provider Aspire Global AG and functioned as a private company prior to its November initial public offering.

The firm provides online lottery services and solutions to a variety of state-level customers across the US and is the only pure-play equity in this category. Many investors may not be familiar with NeoGames, due to its recent listing date and its small-cap status. But the thesis underpinning the name is familiar. Increased adoption by states, echoing the refrain often heard regarding operators of internet casinos and online sportsbooks.

“We believe there is significant upside to the US iLottery market and believe there could be 30-35 states that consider passing iLottery legislation within the next five to ten years,” said Stifel’s Wieczynski.

NeoGames already has contracts with Michigan, New Hampshire, North Carolina, and Virginia, making it the largest provider of iLottery technologies in terms of population covered. The company’s platform in Michigan is the highest-grossing offering of its type in the country.

Compelling Value

Broadly speaking, analysts and investors are enthusiastic about iGaming and sports wagering equities. But when dissenting opinions emerge, those takes usually revolve around frothy valuations relative to the total addressable market.

Wieczynski notes that isn’t the case with NeoGames. In fact, attractive multiples are one reason the analyst likes the stock.

“Valuation remains compelling, given where certain sports betting/iGaming operators are currently trading, while we expect a cleaner story around the growth in iLottery,” he said.

He adds NeoGames’ balance sheet is tidy, the company generates “abundant” free cash flow, and its management team has a track record of accretive acquisitions.