Key insights
- The author expresses a bullish view on Evolution AB ($EVO), a Swedish iGaming company, arguing the market undervalues its growth potential due to regulatory and cybercrime concerns. They believe tightening regulations strengthen EVO's moats and highlight its strong financial metrics. Kenneth Dart's significant stake raises the possibility of a take-private, adding to the stock's potential upside. This could have a slightly positive influence on US markets, particularly for companies in the online gaming sector.
I'm still a believer in $EVO since I began following in December 2024.
For those new to $EVO: Evolution AB is a swedish iGaming company that makes online casino games that they license to casino operators (e.g., DraftKings, FanDuel, etc.)
The market is still treating $EVO like a broken business set to grow slower than GDP, when they are the unequivocal leader in iGaming and have super strong moats (long-term contracts, high switching costs, unmatched scale, EBITDA margin 70+%, FCF margin 50+%, etc.)
Bears come down to 2 things: 1) Regulatory pressure and 2) Cybercrime/piracy issues in Asia
I think investors are over-extrapolating them and pricing them as if they permanently impair the franchise. In fact, I'd go as far as arguing that tightening regulations actually strengthens EVO's existing moats.
- Regulations make EVO harder to compete with in the long run. Smaller players might be able to launch a few tables, but replicating a global compliance infrastructure, licensing footprint, product breadth, and operating scale is nearly impossible.
The business has been compounding double-digit top-line for years with a 70+% EBITDA and 50+% FCF margin. Yet, a rough reverse DCF shows that the stock is being priced as if it will grow 2-3% annually in the next 15 years.
Kenneth Dart (very successful vulture investor) also just built a large stake in EVO (I believe roughly 22%). Not sure what his plan is, but a take-private wouldn't be out of the picture.
Thoughts?