Market dominance brings the cash

Driven by the market-leading Jackpotjoy division, Q1 gaming revenues rose 11% to £71.4m with an EBITDA margin of 40.9% and underlying cash conversion of c 100%. Q2 trading has started well across all divisions. Adjusted net debt/EBITDA of c 4.0x remains high, but Jackpotjoy plc (JPJ) is comfortably positioned to pay a major c £95m earnout in June and we expect significant deleverage from 2018. The market is pricing in a high degree of execution risk, with 2017 trading multiples of 6.9x EV/EBITDA and 6.1x P/E. Despite regulatory headwinds, we forecast continued strong underlying growth and we would expect a re-rating as debt repayments begin to drive value to equity.