EVGGF - Evolution AB: Deep Dive Into A Long-Term Compounder On Sale

2025-01-01 04:53:48 ET

Summary

• Evolution AB is the uncontested market leader in live casino solutions, with a proven business model and significant growth potential, despite a 35% YTD stock decline.
• The company boasts a strong moat due to scale, a superior product portfolio, and high switching costs, ensuring long-term competitive advantages.
• Management excels in capital allocation, with high insider ownership, strong ROIC, and shareholder-friendly policies like dividends and share buybacks.
• Despite regulatory and competitive risks, Evolution AB is significantly undervalued, offering an 84% upside to its fair value of $143, making it a Strong Buy.

Evolution AB (EVVTY), (EVGGF) is a leader in developing and providing B2B online casino solutions and the uncontested market leader in the Live Casino segment with a market share of over 60% . In this segment, core offerings include traditional table games like Roulette, Blackjack and Baccarat. Next to Live Casino, Evolution AB is also attempting to increase its presence in the RNG segment (Random Number Generator), mainly through acquisitions. This Swedish company was founded in 2006 by Jens Von Bahr, Fredrik Österberg, and Richard Hadida, all three of which are still involved with the company.

While the stock trades in Swedish króna [SEK] and reports financials in euro [EUR], I show most numbers to US dollars [USD] in this article.

Investment Thesis

Evolution AB has become a rare investment opportunity in the arena of quality investing, after the stock performed very poorly this year (down -35% YTD) despite the continued strong growth of the underlying business (2024E: +20% revenue, +8% Profit/FCF which would be +18% excluding the impact of a one-time change in effective tax rate).

In this article, I will elaborate on the 5 reasons why I rate Evolution AB a Strong Buy right now....

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