IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tabcorp-holdings-ltd" target="_blank" data-smartkarma-citation="entities:6837:1" rel="noopener">Tabcorp Ltd (TAH AU)</a>’s demerger to create two standalone companies listed on the ASX, The Lottery Corporation and New Tabcorp, was approved today.</li>
<li>Subject to the scheme approved by the Court, the Lottery Corporation will trade on a deferred settlement basis on 24 May and a normal settlement basis on 2 June.</li>
<li>Peer derating due to the market sell-off results in a lower SoTP valuation of A$5.62 per share, which is still a 13% upside to the last close.</li>
</ul>



Tabcorp Ltd (TAH AU)’s demerger to create two standalone companies listed on the ASX, The Lottery Corporation and New Tabcorp, was approved today.
Subject to the scheme approved by the Court, the Lottery Corporation will trade on a deferred settlement basis on 24 May and a normal settlement basis on 2 June.
Peer derating due to the market sell-off results in a lower SoTP valuation of A$5.62 per share, which is still a 13% upside to the last close.


Tabcorp’s Demerger Approved Paving the Way to Unlock Value

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tabcorp-holdings-ltd" target="_blank" data-smartkarma-citation="entities:6837:1" rel="noopener">Tabcorp Ltd (TAH AU)</a>’s demerger will create two standalone companies listed on the ASX - The Lottery Corporation and New Tabcorp</li>
<li>The scheme meeting to approve the demerger will be held on 12 May at 10.00 am. The Lottery Corporation will trade on a normal settlement basis on 2 June.</li>
<li>This transaction aims to unlock value. Our SoTP valuation is A$6.13 per share, which is a 14% upside to the last close price of A$5.39 per share.</li>
</ul>



Tabcorp Ltd (TAH AU)’s demerger will create two standalone companies listed on the ASX - The Lottery Corporation and New Tabcorp
The scheme meeting to approve the demerger will be held on 12 May at 10.00 am. The Lottery Corporation will trade on a normal settlement basis on 2 June.
This transaction aims to unlock value. Our SoTP valuation is A$6.13 per share, which is a 14% upside to the last close price of A$5.39 per share.


Tabcorp’s Valuation Discovery into the Demerger

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>On the 2 February, <a href="https://www.smartkarma.com/entities/playtech-plc" target="_blank" data-smartkarma-citation="entities:22099:1" rel="noopener">Playtech Plc (PTEC LN)</a>'s shareholders voted down <a href="https://www.smartkarma.com/entities/aristocrat-leisure-ltd" target="_blank" data-smartkarma-citation="entities:10303:1" rel="noopener">Aristocrat Leisure (ALL AU)</a>'s £2.1 billion Offer.</li>
<li>The Offer failed after Playtech was unable to engage with a block of Asia-based investors who owned ~28% of the company.</li>
<li>As a developer of online casino games, Playtech is an obvious target. Reportedly its second-largest investor and two Playtech CEOs - former and current - are piecing together a deal. </li>
</ul>


On the 2 February, Playtech Plc (PTEC LN)'s shareholders voted down Aristocrat Leisure (ALL AU)'s £2.1 billion Offer.
The Offer failed after Playtech was unable to engage with a block of Asia-based investors who owned ~28% of the company.
As a developer of online casino games, Playtech is an obvious target. Reportedly its second-largest investor and two Playtech CEOs - former and current - are piecing together a deal. 


European Event-Driven Analyst

Jesus Rodriguez Aguilar

<a href="https://www.smartkarma.com/entities/playtech-plc" target="_blank" data-smartkarma-citation="entities:22099:1" rel="noopener">Playtech Plc (PTEC LN)</a>'s shareholders have won big time at the casino table. On late Sunday 17 October, Playtech, a FTSE 250 white label gambling-technology company, said that it has agreed to a £2.1 billion takeover from Australian slot machine manufacturer <a href="https://www.smartkarma.com/entities/aristocrat-leisure-ltd" target="_blank" data-smartkarma-citation="entities:10303:1" rel="noopener">Aristocrat Leisure (ALL AU)</a> through its subsidiary Aristocrat (UK) Holdings Ltd. The acquisition is to be effected by means of a scheme of arrangement under Part X of the Isle of Man Companies Act 2006. Aristocrat's offer is its fourth bid, but the first one to be made public.
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Under the offer, accepting shareholders of Playtech will get 680p/share in cash, cum dividend, a 58% premium to the closing price of 429.20p on Friday 15 October.
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The offer puts an enterprise value on Playtech of £2.7 billion. Gambling companies are rushing to profit off the deregulated gambling market in the USA, which is forecast to become one of the biggest betting and gaming markets in the world. The USA online gambling market was valued at USD 2,178 million in 2020, and it is estimated to have a CAGR of 17.34% during the period 2021-2026 (source: Mordor Intelligence). Online betting is expected to be the fastest-growing segment during 2021-2026. Software providers are embarking on M&amp;A to achieve consolidation and optimise their product portfolio. See <a href="https://www.smartkarma.com/insights/mgm-s-prospective-offer-for-entain" target="_blank" data-smartkarma-citation="insights:46752" rel="noopener">MGM's Prospective Offer for Entain</a> and <a href="https://www.smartkarma.com/insights/enlabs-entain-raised-offer" target="_blank" data-smartkarma-citation="insights:48838" rel="noopener">Enlabs - Entain: Raised Offer</a> and <a href="https://www.smartkarma.com/insights/draftkings-entain-cash-and-shares-approach" target="_blank" data-smartkarma-citation="insights:57963" rel="noopener">DraftKings/Entain: Cash and Shares Approach</a>. The Americas are driving the growth of Playtech.
The deal should allow Aristocrat to gain scale and increase offering in both Aristocrat’s casino business and the online sports betting market in the USA, where Playtech has recently expanded in response to more relaxed rules allowing online gambling and sports betting. Aristocrat expects to realise additional EPS in the high single digits in the first year after purchase.
Playtech's est. WACC is 9.2% vs a LTM ROIC of 4.6%. This means that the company destroys value as it grows. Aristocrat est. WACC is 9.6% vs. a LTM ROIC of 4.5%. Like Playtech, it destroys value as it grows. This may be the reason why Aristocrat is seeking scale.
I value Playtech using a SOTP model (gaming business valued at sector multiples and Financials business in line with financial trading peers and call options related to Latin America structured agreements at book value). My estimate of fair value is 590p.
Paraphrasing the Chairman of Playtech, the deal provides an attractive opportunity for shareholders to cash the chips. This is a done deal, as shareholders are highly likely to approve it, in my view. Gross spread is just 0.4%. I would wait for share price weakness before establishing a position.
Playtech was in the process of streamlining and divesting poor performing divisions (Finalto), thus becoming more attractive and the latest London-listed gambling company to be targeted for a takeover, as operators rush to build scale and break into the USA. 2021 has seen the takeover of <a href="https://www.smartkarma.com/entities/william-hill-plc" target="_blank" data-smartkarma-citation="entities:22210:1" rel="noopener">William Hill (WMH LN)</a> (<a href="https://www.smartkarma.com/insights/william-hill-caesars-almost-done-deal-trading-above-terms" target="_blank" data-smartkarma-citation="insights:43809" rel="noopener">William Hill - Caesars (Almost) Done Deal, Trading Above Terms</a>), and two attempts on <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a>.

Playtech Plc (PTEC LN)'s shareholders have won big time at the casino table. On late Sunday 17 October, Playtech, a FTSE 250 white label gambling-technology company, said that it has agreed to a £2.1 billion takeover from Australian slot machine manufacturer Aristocrat Leisure (ALL AU) through its subsidiary Aristocrat (UK) Holdings Ltd. The acquisition is to be effected by means of a scheme of arrangement under Part X of the Isle of Man Companies Act 2006. Aristocrat's offer is its fourth bid, but the first one to be made public.

Under the offer, accepting shareholders of Playtech will get 680p/share in cash, cum dividend, a 58% premium to the closing price of 429.20p on Friday 15 October.

The offer puts an enterprise value on Playtech of £2.7 billion. Gambling companies are rushing to profit off the deregulated gambling market in the USA, which is forecast to become one of the biggest betting and gaming markets in the world. The USA online gambling market was valued at USD 2,178 million in 2020, and it is estimated to have a CAGR of 17.34% during the period 2021-2026 (source: Mordor Intelligence). Online betting is expected to be the fastest-growing segment during 2021-2026. Software providers are embarking on M&amp;A to achieve consolidation and optimise their product portfolio. See MGM's Prospective Offer for Entain and Enlabs - Entain: Raised Offer and DraftKings/Entain: Cash and Shares Approach. The Americas are driving the growth of Playtech.
The deal should allow Aristocrat to gain scale and increase offering in both Aristocrat’s casino business and the online sports betting market in the USA, where Playtech has recently expanded in response to more relaxed rules allowing online gambling and sports betting. Aristocrat expects to realise additional EPS in the high single digits in the first year after purchase.
Playtech's est. WACC is 9.2% vs a LTM ROIC of 4.6%. This means that the company destroys value as it grows. Aristocrat est. WACC is 9.6% vs. a LTM ROIC of 4.5%. Like Playtech, it destroys value as it grows. This may be the reason why Aristocrat is seeking scale.
I value Playtech using a SOTP model (gaming business valued at sector multiples and Financials business in line with financial trading peers and call options related to Latin America structured agreements at book value). My estimate of fair value is 590p.
Paraphrasing the Chairman of Playtech, the deal provides an attractive opportunity for shareholders to cash the chips. This is a done deal, as shareholders are highly likely to approve it, in my view. Gross spread is just 0.4%. I would wait for share price weakness before establishing a position.
Playtech was in the process of streamlining and divesting poor performing divisions (Finalto), thus becoming more attractive and the latest London-listed gambling company to be targeted for a takeover, as operators rush to build scale and break into the USA. 2021 has seen the takeover of William Hill (WMH LN) (William Hill - Caesars (Almost) Done Deal, Trading Above Terms), and two attempts on Entain (ENT LN).

Aristocrat/Playtech: Cashing in the Chips

<a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> confirmed that it had received a proposal from <a href="https://www.smartkarma.com/entities/draftkings-inc" target="_blank" data-smartkarma-citation="entities:29248:1" rel="noopener">DraftKings Inc (DKNG US)</a>. On 22 September, the Board said that following an earlier approach at 2,500p/share (mix of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. DraftKings Inc. revised the offer price to 2,800p/share (630p in cash and and the balance payable in new DraftKings Class A common shares).
The acquisition of Entain could be strategic for DraftKings, which is eyeing international expansion. The consideration represents a premium of 46.2% to Entain’s closing share price on 20 September 2021, 4.5x EV/NTM Sales, 19.2x EV/NTM EBITDA and 39.2x Fwd P/E (source: Capital IQ consensus).
PUSU deadline is 19 October.
There is some interloper risk. In case DraftKings presents a firm offer, MGM could potentially bid again for Entain. Nevertheless, MGM in the past has said that its joint-venture agreement with Entain gives it protection against another entity trying to acquire Entain without its approval.
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Moreover, the gambling business is ideal private equity territory. Betting businesses are cash cows and the revenue flows can be (or should be) precisely predicted. The lower cost of capital of private equity firms and the financial discipline introduced are a key advantage in the industry.
</div>
BetMGM (Entain’s joint venture in the US with MGM Resorts) continues to perform strongly. H1 NGR of $357m. Number two operator for sports-betting and iGaming across the US with 22% market share, number one operator in iGaming, extending leadership with 30% market share. Total combined investment in BetMGM by joint venture partners expected to be $660m by the end of 2021.
Valuation of Entain. By using the median of comparables 11.9x EV/Fwd EBITDA, the implied valuation of Entain would be 1,628p/share. To value BetMGM, I expect total revenue of $3.6 bn by 2025. By applying a 3.0x EV/Fwd Revenue multiple, the valuation of the JV could reach $10.8 bn, of which $5.4 bn for Entain (equivalent to £3,933 mn, or 672p per share).
Adding the base case plus BetMGM, my longer term TP is 2,300p. The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in Entain. I would therefore be LONG.

Entain (ENT LN) confirmed that it had received a proposal from DraftKings Inc (DKNG US). On 22 September, the Board said that following an earlier approach at 2,500p/share (mix of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. DraftKings Inc. revised the offer price to 2,800p/share (630p in cash and and the balance payable in new DraftKings Class A common shares).
The acquisition of Entain could be strategic for DraftKings, which is eyeing international expansion. The consideration represents a premium of 46.2% to Entain’s closing share price on 20 September 2021, 4.5x EV/NTM Sales, 19.2x EV/NTM EBITDA and 39.2x Fwd P/E (source: Capital IQ consensus).
PUSU deadline is 19 October.
There is some interloper risk. In case DraftKings presents a firm offer, MGM could potentially bid again for Entain. Nevertheless, MGM in the past has said that its joint-venture agreement with Entain gives it protection against another entity trying to acquire Entain without its approval.

Moreover, the gambling business is ideal private equity territory. Betting businesses are cash cows and the revenue flows can be (or should be) precisely predicted. The lower cost of capital of private equity firms and the financial discipline introduced are a key advantage in the industry.

BetMGM (Entain’s joint venture in the US with MGM Resorts) continues to perform strongly. H1 NGR of $357m. Number two operator for sports-betting and iGaming across the US with 22% market share, number one operator in iGaming, extending leadership with 30% market share. Total combined investment in BetMGM by joint venture partners expected to be $660m by the end of 2021.
Valuation of Entain. By using the median of comparables 11.9x EV/Fwd EBITDA, the implied valuation of Entain would be 1,628p/share. To value BetMGM, I expect total revenue of $3.6 bn by 2025. By applying a 3.0x EV/Fwd Revenue multiple, the valuation of the JV could reach $10.8 bn, of which $5.4 bn for Entain (equivalent to £3,933 mn, or 672p per share).
Adding the base case plus BetMGM, my longer term TP is 2,300p. The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in Entain. I would therefore be LONG.

DraftKings/Entain: Cash and Shares Approach

United Kingdom

Entain is a global sports betting and gaming company operating in regulated online and retail markets. It offers a diverse portfolio of services, including sports betting platforms and online gaming experiences through brands like bwin, Coral, Ladbrokes, and PartyPoker. Entain was founded in 2004 and is headquartered in Douglas, Isle of Man.

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Entain (ENT LN)

Tabcorp’s Demerger Approved Paving the Way to Unlock Value

The demerger was overwhelming approved. Peer derating due to the market sell-off results in a lower SoTP valuation of A$5.62, a 13% upside to the...

Arun George

Tabcorp’s Valuation Discovery into the Demerger

The scheme meeting to approve the demerger will be held on 12 May at 10.00 am. Our SoTP valuation is A$6.13 per share, which is a 14% upside to the...

Arun George

Playtech (PTEC LN): A Nuanced Flutter

Presumably, a firm Offer from TTB could only unfold if they have the inside track on the Asian block's intentions. This is a messy, nuanced affair,...

David Blennerhassett

Aristocrat/Playtech: Cashing in the Chips

Shareholders are highly likely to cash in the chips, in my view. Gross spread is just 0.4%. Wait for share price weakness. London-listed gambling...

Jesus Rodriguez Aguilar

DraftKings/Entain: Cash and Shares Approach

The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in...

Jesus Rodriguez Aguilar

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