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38Evolution has released documents related to its 2025 Shareholders Meeting, which will take place on May 9th. The documents contain a wide range of news, touching on the following points:
1. return to shareholders
2. new incentives
3. limitations of the Board of Directors
4. shareholder proposals.
🔎 If you want to know more visit the full analysis at: https://dalemcapital.substack.com/p/evolution-evo-reuniao-de-acionistas?r=5b4g28
"The Board will endeavour to distribute excess cash in the most value enhancing way possible.
There are times when repurchases of own shares are more value enhancing and there can be situations where extra dividends are preferred. In those cases, the Board may decide to pay a special divided which will be decided upon at the Annual General Meeting or at an Extraordinary General Meeting. "
"We aim to be in a net cash position over time, with an ability to deploy modest short term leverage for unique shareholder value enhancing opportunities.
We are a highly profitable business as a market leader with a best-in-class product in a growing global industry, supported by strong long-term secular tailwinds.
Our first priority will be to invest in growing our existing business organically."
Evolution AB is a leading global provider of live online casino solutions, with a highly scalable business model, operating margins of over 60% 📈 and an exceptional ability to generate cash flow 💰. The company has benefited from the structural growth of the online gaming sector and strengthened its position through continuous innovation 🚀 and strategic acquisitions 🤝.
🧠Main points to consider:
- Market leadership with an estimated share of >30% globally and >50% in Europe in the live casino segment, with strong brand recognition and sustainable competitive advantages;
- High profitability, with net margins above 50% and return on invested capital (ROIC) above 29%;
- Solid financial structure, with a net cash position (€693m in 2024) and a strong capacity for reinvestment and distribution of capital to shareholders;
- Attractive valuation, with an estimated intrinsic value well below the current share price;
- Active shareholder return policy, with dividends and share buybacks totaling ~8.3% annual yield;
- Controlled risks, with significant regulatory exposure, but mitigated by geographical diversification and robust compliance practices;
A $EVO (-0.29%) has demonstrated solid execution, discipline in capital allocation and a commitment to creating shareholder value. Given its growth profile, margins above the sector average, strong cash generation and attractive valuation, Evolution presents itself as an interesting investment opportunity 📊💼.
🔎 If you want to know more about this investment opportunity, visit the full analysis at: https://substack.com/@dalemcapital/note/p-159707572?utm_source=notes-share-action&r=5b4g28
My goal is to beat the market, I'm still relatively young and want to see if I can do it, if not I'll put everything in an etf in 5 years.
Regarding my portfolio, I currently have a cash ratio of 23-25% depending on the fluctuations in the last month.
Purchases of existing stocks:
I plan to increase the financial stocks by 50%, $CG (+5.28%)
$KKR (+5.57%)
$APO (+4.56%)
$TPG (+4.82%) .
In addition, a little $DMP (+0.4%) by 25%.
Sales:
I made the mistake of wanting to $EVO (-0.29%) and $CPRX (-0.22%) trade, but then I was too greedy.
I am convinced of both positions in the long term but not in this size in the portfolio, which is why I will reduce both stocks by 33%.
Potential purchases:
$HALO (+0.95%)
$CUV (+0.12%) - Will invest a little extra, otherwise just the 33% from sale of $CPRX. Both around 50 - 50
$SL (+2.06%) - the same as $TISG (+0.09%)
$KSPI (+0.26%) - about as high as $MUM (+3.63%)
$FIH.U (-0.69%) - about as high as $MUM (+3.63%)
$2GB (-0.09%) - about as high as $MUM (+3.63%)
$M12 (-1.32%) - about as high as $MUM (+3.63%)
$CPR (+0.23%)
$DGE (-1.15%)
$RI (+0.73%) - I'll wait and see, but I can imagine that they will develop in a similar way to the tobacco shares. Since I don't want to decide, I'll just buy three for the sum of one. And divide the amount between these 3.
In general:
I'm generally a fan of putting together baskets like with alcohol or the yacht builders.
What would you change because you see a high risk? I am relatively poorly positioned in the tech sector, do you have any other titles that I could take a closer look at in this area?
Even though I am generally very positive about Evolution, the opportunity cost is getting higher and higher, especially now that many other shares are also on sale. I am currently -25% down (with costs). Unfortunately, I don't see the share making up for this any time soon and waiting for the dividend is a zero calculation given the lack of momentum. All the good news, such as strong demand in the Brazilian market, US expansion, share buybacks and good prospects for powerful compensation are not at all reflected in the share price.
I mean Buffet once said that an excellent company is not necessarily an excellent share. And that seems to be the case, at least for the moment, with Evolution. How do you see that?
I also want to consolidate my portfolio somewhat.
Grab the popcorn 🍿 $EVO (-0.29%)
On March 7, 2025, a judge in New Jersey ruled that the identity of the mysterious individuals who published a report in 2021 that made serious allegations against Evolution must be revealed. At the time, this report led to a multi-billion dollar collapse in the share value of Evolution, a leading provider of live casino services. The judge rejected a request to delay the disclosure, which means that the original deadline will be met and Evolution should learn the names on the same day. Following the disclosure, Evolution can continue with its defamation case, in which the company is seeking billions in compensation. According to sources, a major online gaming company is said to be behind the report, further fueling speculation about the motives.
https://next.io/news/casino/mystery-evolution-accusers-unmasked-today-nj-judge/
What are the current problems?
Margin compression
slower sales growth
Asia
ESG
1. margins
Why is the margin falling?
$EVO (-0.29%) The company is expanding into the American market, and to do this they have to open a studio in every state in which they offer their services. It is much more expensive to build and maintain studios in the USA, and the cost of staff is higher than in the usual Eastern European studios. In the course of expansion, this will ensure that margins will fall for the time being.
When will the margin rise again?
The expansion into the USA has the same reason for Evolution as for all other companies: the US consumer simply spends the most money. This also applies to games of chance. Although the expansion is initially associated with higher costs, the higher stakes should ensure that margins improve significantly in the long term. I am assuming a maximum time frame of 30 months until the expansion is fully completed. The margin will probably fall to around 60% before rising again in the long term.
2. sales growth
The most important scaling element for Evolution is new gaming tables. The markets outside the USA are almost completely developed, which means that hardly any new tables are being added. If fewer new tables are added, Evolution is dependent on the market itself growing. The market is expected to grow by around 6-12% annually, meaning that Evolution is growing even faster than the market. The explosive growth in turnover in recent years has resulted from the rapid expansion of Evolution. Like the margin, sales should improve strongly with the US expansion. I expect this to take about 8-12 months.
3 The Asian market
Since April, cyber attacks on video production have meant that sales (in what is currently the largest market) have stagnated. In my opinion, it is not really clear when this problem will be solved. A weakening Asian market will also put pressure on margins. The fact that Evolution is taking so long to resolve the problem exudes enormous uncertainty, which the market is known to dislike.
4TH ESG
Like tobacco, gambling is a sense sector that is screened out by ESG criteria, which means that institutions largely ignore no matter how cheap the company appears to be. The situation only changes when there is enough momentum that the potential return can no longer be ignored. Anyone involved in the tobacco sector knows this only too well. If ESG is (hopefully finally) abolished, this will be one of the biggest long-term catalysts for $EVO (-0.29%) .
Conclusion
I think it is self-explanatory that a company that grows about 10-15% annually, has no debt, buys back shares, is the absolute market leader and has fantastic margins does not deserve a P/E ratio of 13.
Expectations that Evolution will grow by 30% a year forever are absolutely unrealistic and that the company will be punished for the unrealistic expectations of investors always proves to be nonsensical.
The focus on medium-term margin compression rather than the extremely important expansion into the USA is also more than irrational. If Evolution expands into the US, they practically have a monopoly and the high barriers to entry (as openly explained) create a wonderful moat.
