Kindred evaluates ‘merger or sale’ after Q1 revenue climbs to £306m

Kindred Group cites a return to positive trading in Q1 2023 after a difficult 2022, with profit noticeably recovering from a major dip last year, but the firm has detailed that it will continue to assess ‘alternative options’ to maximise revenue.

A recovery from dire 2022

The company updated its Stockholm Nasdaq-investors this morning that ‘encouraging improvements’ across the first three months of the year saw revenue from its B2C Unibet and 32Red brands in addition to B2B operations rise 24% to £306m (Q1 2022: £247m).

Improved headline revenues drove profit before tax to £30m and profit after tax to £26m, marking a growth rate of 75% for both figures from corresponding Q1 2022 results of £7.6m and £6m. 

Profit was accompanied by an increase in underlying EBITDA of 50% from £24m last year to £49m, although the results stand significantly lower than the £98m recorded in 2021. 

Nevertheless, this return to form on profitability and EBITDA is a noticeable improvement on year end 2022 trading, where EBITDA fell 61% despite overall revenue growth.

Commenting on results, Group CEO Henrik Tjärnström informed investors that ‘cost optimisation initiatives’ adopted after the difficulties encountered last year had been implemented during Q1, but that ‘there is a lag’ before the full effect will be seen.

“Total Group revenue increased by 24% to £306.4m for the first quarter of 2023 compared to the same period of last year,” the CEO remarked.

“Within the B2C business improved activity across core markets, especially the Netherlands, helped contribute to this strong start to the year. The B2B business further supported through exceptionally strong growth, with Relax Gaming revenue increasing by 90% compared to the same period last year.”

European disparities and American prospects

In his breakdown, Tjärnström was keen to focus on the Netherlands, where gross winnings revenue increased 8% to £57.3m (£52.8m).

In fact, the impact of the Dutch market is best reflected by Kindred’s group-wide active customer numbers, which rose 18% across the board to 1,623,568 (1,377,317), but only by 3% when the Netherlands is excluded.

Despite ‘most of’ Kindred’s core markets continuing to ‘perform well’, hurdles remained across some areas of the firm’s European business, with the group’s CEO highlighting Belgium in particular.

“This is primarily related to Kindred putting in place stricter anti-money laundering checks and improved responsible gambling processes,” Tjärnström asserted, whilst also maintaining that the group is on track to secure marketing leadership in the neighbouring Netherlands by the end of the year.

Meanwhile, when navigating European regulatory waters Kindred hit a rock in the UK earlier this year when Unibet and 32Red were issued a combined fine of £7.1m by the Gambling Commission (UKGC), which has not been referenced in the company’s trading update.

Away from Europe, Tjärnström cited ‘positive developments’ in North America, where Kindred had set a target of reducing losses last year in the highly competitive and high spending market.

In Q1, the group has reported gross winnings revenue of £8m, an increase of 30% on £5.6m last year. This also represents a return to form against 2021 comparatives, when the group recorded £7.4m in gross winnings revenue.

Kindred remains optimistic of further North American prospects, having been openly dissatisfied with its performance there last year. 

Most recently the group secured a deal with a Washington tribal casino operator to launch Unibet branded retail sportsbooks, a move preceded by a licensing development in New Jersey.

“On 14 April we received approval from the New Jersey Division of Gaming Enforcement for our proprietary Kindred platform, which we are expecting will go live in mid-May,” Tjärnström said.

“This is great news and will provide Unibet customers in New Jersey with an enhanced experience and give us better control of performance and the customer offering.”

Outlook – Kindred going to auction?

Concluding group trading for January to March 2023, Kindred closed the quarter with improved group cash flow generated from operations of £29m, a major uptick on a loss in Q1 2022 of £5.5m.

Post quarterly trading has seen the firm declare gross winnings revenue as of 23 April of £3.5m, 38% higher than £1.3m declared in the same timeframe last year, with the Netherlands continuing to remain a key growth driver.

However, the group’s Q1 revenue of £306m and post-tax profit of £26m still remain far below 2021 comparatives of £353m and £73m, and the firm has pledged to its stakeholders that it will continue to ‘evaluate strategic alternatives’ to boost returns.

In a statement issued separately to its trading update, Kindred outlined that such alternatives could include a potential in-whole or in-part sale or merger of the company, as well as ‘other possible strategic transactions’.

Kindred will be assisted with any potential sale or merger plans by financial advisors PJT Partners, Morgan Stanley & Co. International plc and Canaccord Genuity, but has set no firm timetable for such developments.

“There can be no assurance regarding the results or outcome of Kindred’s review of strategic alternatives,” the statement concluded.

“Subject to compliance with its ongoing disclosure obligations pursuant to applicable laws and regulations, Kindred undertakes no obligation to make any further announcements regarding the exploration of strategic alternatives unless and until final decisions are made by the Company’s Board of Directors.”

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