Inspired Entertainment Stock Could Inspire More Gains

Posted on: November 11, 2024, 06:16h. 

Last updated on: November 12, 2024, 09:11h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Relative to other gaming stocks, Inspired Entertainment (NASDAQ: INSE) leads a somewhat nondescript existence, but some analysts believe the shares deserve more acclaim.

Inspired
The Inspired Entertainment corporate logo. An analyst says the stock could double. (Image: PR Newswire)

Toiling in anonymity is often a fact of life for stocks with market capitalizations of $277.74 million – where Inspired settled on Monday – and that’s true across all industries. However, the supplier of video gaming terminals (VGT) and software is up 16.67% over the past month, potentially signaling the stock is worthy of more attention. B. Riley analyst David Bain concurs, citing the company’s strong third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA).

3Q24 was highlighted by structural margin enhancements in its gaming and leisure segment, discussed below. Interactive EBITDA grew 47%, driven by 40% top-line growth and higher margins (compound effect),” wrote the analyst.

Bain rates shares of Inspired “buy” with a $21 price target, or nearly double where the stock closed on Monday.

Inspired Entertainment’s Interactive Unit is Growing

Inspired’s interactive unit underpins the broader growth thesis. Inspired also has room to rapidly accelerate growth in the interactive gaming arena by way of its strong content library.

The company also has considerable leverage in the rapidly growing iGaming space. As Bain noted, Inspired has notched hybrid table game deals with operators including BetMGM, Caesars, and FanDuel, and those accords pertain to multiple countries, including the US.

“Growth of 40% was magnified by margin gains, despite increased costs as INSE prepares for a full launch in Brazil before the end of the year,” added Bain. “Strong game launches combine with a refined game introduction roadmap (more precise game replacement timeline, many utilizing proven math models with new art/features, or seasonal/holiday game themes). Further, new markets such as Italy are beginning to ramp and INSE enters Peru and South Africa in the current quarter.”

Outside of the UK, Italy is Europe’s largest regulated gaming market, and Brazil is in the process of liberalizing online wagering laws that could increase the allure of Latin America’s largest economy to operators and content providers such as Inspired.

Inspired Could Consider Asset Sale

It’s possible Inspired Entertainment could join the increasingly long line of gaming companies mulling asset sales as avenues for boosting cash and creating value for shareholders. In the case of the gaming technology company, analysts and investors believed the firm could divest its holiday park unit at some point this year.

That appears unlikely with Inspired enjoying the unit’s free cash flow (FCF) benefits, but Bain said a sale of that business is still possible in the future.

“While not privy to mergers and acquisitions discussions, we believe the holiday park business is still likely to be sold over time. However, we believe INSE’s cash accumulation and ongoing cash flow harvesting puts it in a position of strength related to the timing and price of any such sale,” Bain said.