Fireside Feedback And The Debates On Regulation And Growth

Research evidence excerpt

Fireside Feedback And The Debates On Regulation And Growth

IdeaMRegulatory overhang and growth. With the UK Gambling Commission settlement

(here) and our expectation that Galaxy Gaming will be resolved imminently (option

to terminate the agreement), Evolution is addressing some of its specific regulatory

overhangs, which should support the shares (the Playtech legal defamation case

endures on a probable multi-year timeframe), But more broadly, we expect the

debate around the risk profile (potential for further ringfencing) for a supplier with

half its revenue from unregulated markets (vs operators in our coverage which are

either fully or heavy-majority regulated) to endure. This is particularly the case

when revenue growth in live remains weak (though we find the RNG turnaround

encouraging) and we see acceleration here as key to the equity story.

Following the Q2 results, we lower our underlying forecasts by ~2% at EPS,

reflecting weaker live revenues partially offset by better RNG and lower personnel

cost inflation. We update for Evolution's buyback, with a cadence higher than we

previously anticipated, leading to FY26/27 EPS +6/9%. Combined with rolling

forward the valuation to FY27, our price target increases to SEK740 (+7% upside)

from SEK660, and we remain Equal-weight, preferring scaled operators in our

coverage.

Exhibit 1: Evolution's live growth (shown here on a 2-year growth rate) has

decelerated for 15 consecutive quarters

180%

160%

140%

120%

100%

80%

60%

40%

20%

0%

-20%

17 17 17 17 18 18 18 18 19 19 19 19 20 20 20 20 20 21 21 21 21 22 22 22 22 23 23 23 23 24 24 24 24 25 25 25 25 26 26e 26e 26e

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Source: Morgan Stanley Research estimates