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The board of Kindred Group has pledged to explore strategic alternatives for the operator to drive shareholder value. This could eventually result in a merger or a sale of the whole company.

News nugget

The financial results blended into the background today after the Kindred board announced it would conduct a strategic review of the business that could result in a sale.

The process will explore strategic alternatives for the business as the board seeks to deliver shareholder value.

“Such alternatives could include a merger or sale of the company (in whole or in part) or other possible strategic transactions,” said the board in a statement.

The board of directors has retained PJT Partners, Morgan Stanley and Canaccord Genuity as financial advisers and to assist in its review of strategic alternatives.

No timetable has been established for the completion of the review.

The strategy is being pushed by activist investor and New York-based hedge fund Corvex Management, which is the largest shareholder in Kindred Group.

Last May, after Kindred’s poor financial results, Corvex said: “Given recent developments, we believe the Kindred board should immediately retain a leading, global financial adviser to evaluate strategic alternatives, including the potential value that could be achieved through a sale or business combination.”

Corvex has since increased its ownership stake to more than 15% and now has a seat on the board occupied by James Gemmel.

The share price is up nearly 15% as a result of the announcement (see stock ticker below).

Topline numbers

In Q1 2023, Kindred Group reported a 24% increase in gross winnings revenue to £306.4m.

Core B2C revenue climbed by 23% to £297.3m, driven primarily by strong progress in the Netherlands, which the company re-entered on a regulated basis last July.

Excluding the Netherlands, gross winnings revenue actually declined by 1%, or 3% on a constant currency basis, with regulatory headwinds reported in Belgium and Norway.

Indeed, Norway – where Kindred is locked in a legal dispute with the regulator – was flagged as a particular area of concern by London-based strategic advisory business Regulus Partners.

Analysing the Q1 results, Regulus Partners analyst Paul Leyland wrote: “If we assume Norway contributes c. £40m after direct costs (RP estimate), then this high risk ‘dark grey’ jurisdiction represents c. 30% of run-rate FCF.

“While not crippling, such a loss would be materially value destructive and hard to offset given the lack of growth elsewhere,” he added.

Kindred did report a return to growth in the UK, however, with revenue from the market up 7% compared to the same period of last year, driven by online casino.

The B2B segment, meanwhile, was boosted by 90% annual revenue growth at Relax Gaming.

Kindred generated the majority of its gross winnings revenue from locally regulated markets, which accounted for 81% of the total.

Underlying EBITDA more than doubled to £49.4m amid a year-on-year rise of 102% as profit after tax also soared by 300% to £25.6m.

The operator’s underlying EBITDA margin now stands at 16%, compared to 10% in the prior-corresponding period.

Kindred said the profit growth was attributable to the increased scalability of the group after relaunching in the Netherlands and a strategic focus on cost cutting, especially in marketing.

For example, marketing costs were down 18.3% sequentially as the World Cup marketing push concluded and the operator capped investment in North America to reduce losses.

Salaries and staff costs, however, increased by nearly 35% to £44.5m due to “selective headcount growth”, as the operator seeks top talent to build its proprietary sportsbook platform.

“This investment in our in-house sportsbook, a key value creation driver, continues to drive growth in operating expenditure,” said Kindred CEO Henrik Tjärnström.

“Successful recruitment and strong retention of staff in the second half of 2022, combined with the annual salary review process, have also resulted in higher year-on-year growth in salary costs for the quarter,” he added.

Best quote

“We have an opportunity to gain market share from the larger operators above us.”

Kindred Group CEO Henrik Tjärnström on the UK market

The CEO said Kindred was in a positive position in the UK and was primed to take market share from both large and small operators in the market.

According to Tjärnström, upcoming regulatory changes could push customers to spread their gambling across more operators, while smaller operators will struggle to comply with the increasingly complex regulations and could disappear completely.

Kindred is currently live in the UK with its Unibet sports betting brand and 32Red casino brand. It accounts for approximately 4% of overall market share and is profitable.

The government’s long-awaited review on gambling is set to be published tomorrow (27 April).

Best question

Deutsche Bank head of online gaming research Simon Davies asked whether there might be a “massive short-term ramp-up” in CPAs in the Netherlands as licensed operators compete aggressively to acquire customers ahead of July’s ban on above-the-line gambling ads.

“No, we don’t see that,” said Tjärnström, insisting the operator had taken up a long-term view in the market and was still executing on that strategy.   

Current trading and outlook

Kindred’s average daily revenue up to and including 23 April 2023 came in at £3.54m, a 38% increase on the daily average for Q2 of last year.

This figure was still 10% higher when excluding for the Netherlands.

Kindred said sports betting revenue after the trading period had been positively impacted by a stronger sports betting margin of 12.2%, compared to 9.3% in Q2 2022.

Kindred has not changed its 2023 guidance following the release of its Q1 results. The operator expects to report full-year underlying EBITDA of at least £200m.

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