1. 🔍 Key Insights
- Undervalued Compounder: Evolution AB demonstrates strong fundamentals, robust free cash flow generation, and industry leadership in the live casino segment. Current market pricing suggests a significant discount to intrinsic value based on multiple valuation methods.
- Moat-Driven Business Model: Its sustainable competitive advantage lies in proprietary technology, global regulatory licensing, brand reputation, and high switching costs for B2B partners.
- Management Discipline: High ROIC, conservative debt levels, and consistent capital returns (dividends + buybacks) reflect owner-oriented stewardship.
- Resilient Operations: Despite a deceleration in growth, Evolution maintains best-in-class margins and minimal capital reinvestment needs.
2. ⚙️ Core Evaluation Areas
📈 Valuation
- P/E (TTM): 11.6x vs. peer median ~15–20x
- PEG Ratio: 0.22, indicating undervaluation relative to earnings growth
- FCF Yield: 9.92%, implying strong value vs. market expectations
- Intrinsic Value Range: SEK 1,350–1,450
- Current Price: ~SEK 656 (≈50% discount to fair value)
- Margin of Safety: >30% suggested buy range below SEK 1,000
🚀 Growth Potential
- 5-Year Dividend CAGR: 66.64%
- Global Expansion: North America, Latin America, and Asia remain underpenetrated markets
- Product Pipeline: Investment in RNG games and game shows complements core live casino dominance
🧮 Operational Efficiency
- Gross Margin: 100% (digital, asset-light model)
- Operating Margin: 64.1% (best-in-class)
- ROIC vs. WACC: 30.5% vs. 8.6% — significant value creation spread
- CapEx/FCF Ratio: ~11% — signals capital-light reinvestment model
⚠️ Risk Factors
Company-Specific (High/Moderate):
- Regulatory Review (High): Ongoing UKGC license investigation poses near-term uncertainty
- Litigation (Moderate): Class-action suits related to unregulated market exposure
- Reputational Sensitivity (Moderate): Allegations of rule-bending could deter institutional investors
Market/Systemic (Low/Moderate):
- Currency Risk (Moderate): Global operations subject to SEK/EUR/USD fluctuations
- Consumer Discretionary Exposure (Moderate): Online gaming may decline during downturns, though historically resilient
3. 📊 Supporting Metrics & Comparisons
Metric
Evolution AB
Peer Median
Notable Competitors
P/E
11.6x
18.0x
Playtech, Flutter
ROIC
30.5%
15–20%
Industry leading
FCF Yield
9.92%
3–5%
Outperforms peer average
Net Debt/EBITDA
0.06x
1.5x
Extremely low leverage
4. 📉 Projections and Scenarios
- Base Case Growth: 10–12% revenue CAGR over 5 years (conservative vs. historical ~20%)
- DCF Fair Value: SEK 1,350–1,450 (WACC: 8.56%, Terminal Growth: 2.5%)
- High Sensitivity: Regulatory outcomes, expansion pace, and macro factors can materially affect valuation
✅ 6. Conclusion & Recommendation
Intrinsic Value: SEK 1,350–1,450
Current Price: SEK 656
Margin of Safety: ~50%
Final Recommendation: ✅ BUY
Summary:
Evolution AB is a high-quality business available at a significant discount to intrinsic value. With exceptional profitability, low capital intensity, and strong management, it aligns closely with long-term value investing principles. While regulatory overhangs exist, they appear manageable given Evolution’s track record and global footprint. The company offers a rare mix of high yield, growth, and compounding returns — a strong candidate for long-term capital appreciation.
