GMBL - eSports Entertainment Group Inc. (GMBL) - Just What The Doctor Ordered

Plans to raise cash. The company announced an offering for 1,500,000 Series A Cumulative Redeemable Convertible Preferred Shares. The price of the newly offered preferred stock will be $10 per share and each share will be convertible to common stock anytime by the holder, at a price of $17.50 per share. At $10 per share, the 1.5-million share offering is set to provide the company with an influx of cash roughly in the amount of $15 million. Additionally, the company has signaled its intention to allow a 45-day window wherein the underwriters can purchase another 225,000 Series A Preferred Shares. With the potential for additional share purchases by the underwriters, the total cash raise for the company could reach $17.25 million. The company has applied to list the new preferred shares on the NASDAQ using the symbol, “GMBLP.” We view the move favorably and believe that it is the right financial instrument at this time to raise cash.Resetting the clock. The company found itself low on cash in recent months. After its $17 million acquisition of Bethard in July, the company’s cash position had been depleted from nearly $20 million as of June 30th to an estimated $2.5 million by October. Moreover, the company’s cash burn has been about $1 million per month, further highlighting the need to raise cash. Therefore, the $15 million to $17.5 million influx of cash will serve to allow the company to continue to pursue its aggressive growth strategy. With the potential influx of cash, we are raising our financial assessment from 1 check to 1.5 checks, illustrating the prospect for an improved financial picture.Backed by recent forecast adjustments. Our recent Fiscal 2022 forecast revisions further suggest a need for more cash on the company’s balance sheet. We recently adjusted our estimated Fiscal 2022 expenses upward with the belief that the company’s investment in a new technology platform for Argyll and Lucky Dino will be a key factor in the company’s increased expected expenses. More to the point, in our most recent report, we revised our 2022 adj. EBITDA forecast downward, from a loss of $6.3 million to a loss of $11.5 million, indicating greater negative cash flow than previously expected.Reiterating outperform rating. We reiterate our Outperform rating and maintaining our $12 price target on GMBL shares. The GMBL shares appear compelling, trading at 1.9 times Enterprise Value to our 2022 revenue, well below its peers trading at a median of 3.2 times and a mean valuation of 5.5 times. We believe that the funding of the company should assuage investor concern over its balance sheet and allow the multiple to expand. Read More >>