32Red takes encouragement from underlying performance

A £2m bill for the UK’s Point of Consumption Tax and an increase in marketing in Italy has put a dent in 32Red’s profits despite the online gaming firm’s improved underlying performance.

The company has reported EBITDA of £1.2m for the first half of the year, compared to £2.3m in H1 2014, with profit before taxation plummeting to £100,000 from £1.2m for the comparative period in 2014. In comparison Total Net Gaming Revenue jumped to £18.6m from £15.2m.

CEO Ed Ware commented: “We are delighted to report a record revenue performance for 32Red in the first half of 2015 with NGR from the business up by 22%. This performance was underpinned by our strong brand, leading customer offer and return on investment-driven marketing expertise. Excluding the impact of the newly introduced point of consumption tax in the UK, underlying EBITDA was up 57% reflecting the strong operational momentum in the business.”

32Red stepped up its investment in marketing in Italy during the first half of the year to capitalise on the long term growth opportunities in that market and NGR increased by 67% to £0.9m. A total of 4,285 new players were recruited in the first half (H1 2014: 3,084) bringing the total number of active players to 8,443 (H1 2014: 5,793).

The firm commented: “Marketing investment has expanded the Italian customer base, but there remains a lag between player growth and revenue growth. One reason for this lag lies in the quality and breadth of games of the casino product in Italy, which is still behind our well established UK offering. That said, we will introduce further games to the 32Red.it portfolio later this year which will further boost the appeal and competitiveness of our offer.”

Jane Anscombe, analyst at Edison Investment Research, was encouraged by 32Red’s performance: “Mobile is the big growth driver for online gaming and 32Red now derives over 40% of its casino revenue from mobile. This underpinned a 57% increase in underlying EBITDA to £4.2m before a £2.0m hit from the new POC (point of consumption) tax. Newly acquired Roxy Palace adds scale and broadens 32Red’s geographic spread.

“32Red’s management remains confident of meeting full year expectations: an EBITDA of £5.5-6.0m puts the group on an undemanding 10x EV/EBITDA multiple. 32Red demonstrates that a well-managed online gaming group can still deliver solid profits, cash flow and dividends in a post POC world, and we expect it to continue to look for complementary acquisitions as the little fish struggle.”