The Stars Group (TSG) was indicated higher pre-market after
the company beat second quarter estimates and updated guidance following recent
acquisitions this morning.
The Stars Group is a leader in online and mobile betting, poker, casino, and other gaming-related offerings. The Stars Group owns or licenses consumer businesses and brands representing different niches of gaming and related activities, including online cardroom PokerStars, BetStars, Full Tilt, BetEast, and Sky Betting & Gaming’s gaming brands as well as live poker tour and event brands.
Results on the top and bottom line came in better than expected. Adjusted EPS grew 7% to $0.60/share while revenue grew 35% to $411.5 mln -- up 31% excluding a foreign exchange (FX) tailwind.
Real-money online Poker, Gaming, and Betting revenues represented 52.7%, 24.8%, and 19.7% of revenues for the quarter, respectively.
Poker revenue for the quarter was $217.0 mln, or an increase of ~6.9% year/year. The increase was primarily driven by continued positive impact from the company’s Stars Rewards loyalty program, FX fluctuations, and the introduction of shared poker liquidity in France and Spain in the first quarter and Portugal in the second quarter. Gains were offset by, among other things, the cessation of operations in Australia in September 2017 and Colombia in July 2017 and continued negative operating conditions in Poland due to certain prior regulatory changes in that jurisdiction.
Gaming revenue for the quarter grew 26% to $101.9 mln due to product and content improvements to PokerStars Casino, including the introduction of over 150 new casino games since the beginning of the year, FX, and the launch of PokerStars Casino in certain new markets.
Betting revenues for the quarter were $19.6 mln, or an increase of 122% year/year, driven by increased wagering activity due to product and content improvements to BetStars, the launch of BetStars in certain new markets, and the 2018 FIFA World Cup.
The Stars Group believes it is well-positioned to take advantage of new business and market opportunities as they develop in the U.S. following the Supreme Court’s decision to strike down a ban on sports betting that had stood for the last several decades. Now, more than 20 states either have existing sports betting laws or have legislation pending that pertains to the legalization or study of sports betting. Adjusting in accord with new legal permissions, The Stars Group and Resorts Casino Hotel on August 2 announced the extension of their existing partnership in the New Jersey regulated online gaming market to include online and mobile sports wagering through the BetStars brand alongside already existing online poker and casino offerings available through the PokerStarsNJ brand. On August 10, The Stars Group and Mount Airy Casino Resort announced a partnership to enter Pennsylvania's online sports wagering and gaming market, where The Stars Group will offer to customers in Pennsylvania its online poker, casino, and sports wagering products.
On April 24, The Stars Group increased its equity interest in Australia-based CrownBet from 62% to 80%, and CrownBet acquired William Hill Australia. The aggregate purchase price under the agreements for these transactions was $435 mln (inclusive of $117.7 mln to acquire the previously announced 62% equity interest in CrownBet in February 2017), which was paid in a combination of cash and the issuance of ~ 3.1 mln newly-issued common shares.
The company updated 2018 full year financial guidance ranges to reflect expected partial year contributions from Australian acquisitions and the Sky Betting & Gaming acquisition.
Stars raised fiscal 2018 revenue guidance to $1.995-2.145 bln from $1.39-1.47 bln, raised EBITDA to $755-810 mln from $625-650 mln and lowered adjusted EPS to $1.99-2.22 from $2.33-2.47.
The Stars Group has a ~$9 bln valuation, trading at ~15x earnings estimates.
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