Evolution AB: Candle Lake triggers mandatory offer obligation

Research evidence excerpt

Evolution AB: Candle Lake triggers mandatory offer obligation

Forecast returns

Forecast price appreciation -25.2%

Forecast dividend yield 0.0%

Forecast stock return -25.2%

Market return assumption 7.5%

Forecast excess return -32.6%

Company Description

Evolution is a global B2B supplier of online casino games, primarily to live casinos. Its

customers are both B2C operators and B2B aggregators. Its end users reside in both regulated

and unregulated markets.

Valuation Method and Risk Statement

We value EVO using a DCF, our PT is further corroborated via implied valuation multiples.

Risks to our investment thesis include:

Grey market risks becoming dormant - Our investment thesis rests on the grey market being

subject to a plethora of structural risks. We have conviction in this view, however, grey market

headwinds may not occur within a limited time frame. Should EVO benefit from a period of

grey market risks seemingly abating, market perception of the risk profile of the group may

improve, leading to a higher multiple and greater potential for earnings expectations to be

met or exceeded.

Industry liberalisation - EVO's revenue growth and regulated market exposure may be

naturally accelerated by governments moving to regulate online casino. We would argue this

risk is most prevalent / probable in the US / North America, where state by state legalisation

offers upside to our estimates until 2028 (where we start baking them in consistent with FLUT

and ENT forecasts). EVO would be a beneficiary of more iGaming legalisation, however, we

would flag other stocks within UBS gaming coverage offer relatively benign exposure here as

well. Industry liberalisation in major Asian markets would also be a risk to investment thesis,