CDRO - Codere Online (CDRO) - Sticking to Its Expansion Roadmap
Solid earnings debut. Codere Online released financial results for Q4 and full-year 2021, its first earnings release as a public company. Net gaming revenue was €22.2 million in the quarter compared with €22.3 million in the prior-year period. The lack of growth was due primarily to soft revenue in Spain, adversely affected by recent regulations on marketing and advertising. Adj. EBITDA was negative in the quarter at a €6.5 million loss. Encouraging metrics. The company's average monthly active users in Q4 were 76,365 up 18% from 64,980 in the prior year period. In addition, First Time Deposits (FTDs) increased a significant 48% in the same period to 64,359 from 42,450. We believe these metrics are a positive reflection of management's strategy to drive engagement in growth markets.Strong financials. As of year-end, the company had cash & equivalents of €94.9 million with virtually no long-term debt. Negative net working capital was in range with management expectations of 15-20% of net gaming revenue at negative €15.8 million, or 19% of net gaming revenue. Usually, gaming and betting companies incur negative NWC levels since the customers do not contribute to accounts receivable.Revising estimates. Management provided revised revenue guidance, with a target of becoming cash flow and EBITDA positive by 2024. 2022 revenue estimates are being revised downwards from $152 million US to a range of €110 million to €120 million as a result of changes to exchange rates and regulatory headwinds in Spain. In addition, revenue forecasts for 2023 and 2024 remain at €155 million and €200 million respectively.Adjusting price target. Near current levels, the CDRO shares trade at an attractive 0.8 times enterprise value to the 2023 estimate. We are tweaking our price target from $10 to $9, however, to reflect our lowered revenue expectations and lowered industry comparable multiples. Notably, we are maintaining our Outperform rating, given the favorable risk/reward relationship. Read More >>