Eight years ago, when this company floated on AIM, the online gaming market was believed to be worth some $24bn, today it is around $200bn.
Estimates suggest that it could be up to $340bn within five years.
So why is that important when looking at this company?
Simply because the group is a leading provider of marketing services to online gambling operators.
How does it work
It attracts players through online marketing techniques and directs them to gambling operators.
In return the company receives a share of the revenue generated by such players, a fee per player acquired, fixed fees or a mixture of these three income streams.
Obviously, this business model is predominantly performance-based and it aligns itself with the interest and success of the gambling operators.
The company uses a variety of business intelligence tools, in order to track the flow of traffic to its customers and in seeking to identify and target high value consumers for platform operators.
It also uses these tools to analyse the quality and conversion of such traffic into revenue, in order to improve the group’s return on investment, as well as providing high quality services to its affiliates.
Global clients
The group has the stated ambition to combine the power of people, data-driven behavioural insight, and captivating editorial content to build valuable connections between brands and consumers.
It operates across a number of vertical markets including online gambling, personal finance and sports.
The group’s business is best described as that of a global digital performance publisher.
And it has a very impressive and diverse list of global clients, such as 888 Holdings, mr green, Ladbrokes, Paddypower, betway, Unibet, betsson, William Hill, netmarble, souq.com, traveloka, and product madness amongst hundreds of others.
The company operates branded, content-rich websites, which are underpinned by intelligent market-leading technology and data, aimed at building stronger and lasting relationships with consumers.
It has owned and operated some 2,000 websites, presented in over 18 languages, across 23 countries. Its global business is inclusive of Europe, the US, Latin America and Asia. Today it is brand-led with just under 40 focus sites.
The group seeks to create a balanced portfolio of premium websites to cover a range of attractive geographies, both stable and high-growth verticals, with greater exposure to regulated markets.
Oversubscribed new issue
Based in Limassol in Cyprus, this group was set up as Webpals Marketing Systems in 2008 and changed its name in 2013 to XL Media.
In March 2014, when the company floated on AIM, there was a significant oversubscription for its fundraising of £41.8m, with its shares at 49p each, valuing the 189.56m shares in issue at £92.9m.
Subsequently the shares more than quadrupled to 212p in January 2018, however the ravages of changing regulations and the global impact of Covid-19 went against the company.
Over the years the company has made several acquisitions and has raised funding through equity issues.
Transformation process underway
Last summer the group started to reorganise its operating platform. That de-risking and rationalisation process has been accelerating since then and should be largely completed by this autumn.
The change will help to diversify the group’s revenues, improve its business mix while at the same time lowering its operational costings.
Obviously, there will have been significant costs involved but they will be taken as ‘exceptionals’. That will not impair the profits about to cascade into the group’s balance sheet.
The group’s strategy is to develop a ‘best-in-class’ asset base, connecting consumers and brands in high growth large regulated markets.
Recently announced results
At the end of last month, the company announced its 2021 results, showing some strong figures.
Revenues for the year to end December were $66.5m against $54.8m previously, adjusted pre-tax profits doubled to $10.5m ($5.3m) and cash and short-term investments were almost doubled at $24.6m ($13.9m).
The 2021 Annual Report will be published on 19 May and the AGM will be 10 June, both events could well merit further publicity for the group, possibly with added Trading Updates and corporate comment.
Looking ahead
The company’s broker is Cenkos Securities, their analyst Simon Strong reckons that revenues will pick up to $69.8m for the current year to end December against $66.5m in 2021.
However, he estimates that adjusted pre-tax profits will leap from $10.5m to $16.7m this year, with earnings of 5.6c per share.
Evidence of the group’s potential shows through in the coming year to end 2023, with $78.4m of sales anticipated, helping to kick profits up to $19.5m, worth 5.7c in earnings.
There will be an impact of the group’s transformational activities, as well as including its acquisitions and fundraisings, so that was always expected to suppress operating profits until completion.
The group has made a number of strategic acquisitions in the last few years and has seen initial equity dilution, but that will wash through in future years.
It is well worth noting that the transformation initiatives will reposition the group for sustainable operational and financial growth.
The biggest emphasis of late has been upon the rapid growth of sports betting sites in North America. It now has ‘live’ operations in 15 states, including New York, which is the No 1 for legalised sports betting, with more under discussion.
That led to the strong performance last year in the group’s North American business, with more than doubled revenues. There really is an excellent scope for the rationale of scalability that lies in its NA operations. It is reported to be outperforming management expectations.
Conclusion
Just a year ago the shares of this online marketing group were trading at around 70p, today they are at just 33.50p, but I now consider that they are really undervalued and could well break way above 50p again within the year.