Inspired Entertainment Has Big Potential, Is Undervalued

Inspired Entertainment Has Big Potential, Is Undervalued

Posted on: December 30, 2021, 10:41h. 

Last updated on: December 30, 2021, 10:41h.

Among gaming equities, Inspired Entertainment (NASDAQ:INSE) isn’t getting much attention this year, but recent performance and other factors indicate that should change.

Inspired Entertainment
The Nasdaq market site, listing venue for Inspired Entertainment. An analyst says the shares are undervalued and the story isn’t fully appreciated. (Image: Percepted)

Last week, Flutter Entertainment said it’s acquiring Italy’s online gaming platform Sisal for $2.2 billion and some analysts believe that deal has implications for Inspired. Prior to that transaction being announced, Inspired announced the sale of 3,000 video lottery terminals (VLTs) in Italy to Cristallec. As part of that agreement, Inspired maintains higher margin content-providing rights.

While those deals appear to bode well for Inspired, one analyst argues market isn’t fully appreciating the story here.

We beleive Sisal’s more recent take-out multiple reflects a stabalization in Italy’s gaming industry after years of unfavorable regulations,” says Roth Capital analyst Edward Engel. “We also believe investors were using Sisal’s previous 5.5x take-private multiple as a transaction comp for Inspired, but we believe the recent 7.7x multiple is more indicative of INSE’s underlying value.”

Engel rates Inspired a “buy” with an $18 price target, implying more than 38 percent upside from the Dec. 29 close.

Inspired Overlooked. It Shouldn’t Be.

Inspired stock nearly doubled this year and even with that showing – one of the gaming industry’s best – many investors aren’t aware of this high-flying. That’s likely the case because the company sports a market value of $288.68 million, putting it deep into small-cap territory.

However, the stock is reacting to the aforementioned deal-making in Italy. Since the Flutter/Sisal transaction was announced on Dec. 23, shares of Inspired are higher by nearly 13 percent. The company has a robust content library, which positions it to capitalize on the digital gaming boom.

“Inspired is an Omni-channel content creator for the gaming industry, developing casino games across online and retail channels,” adds Engel. “As earnings exposure from digital segments continue to grow, we see INSE’s valuation expanding towards higher multiple B2B iGaming peers.”

Other catalysts include Inspired bolstering its balance sheet, reducing leverage and the firm’s potential participation in industry consolidation in 2022. Not only are the shares inexpensive, but Inspired is generating free cash flow — something few of its rivals are doing with regularity.

Rush Street Deal

Highlighting the allure of its content library, Inspired last week reached a deal with Rush Street Interactive (RSI) to supply that operator with several titles.

“Inspired’s Interactive content will be integrated onto the RSI game platform, and its popular games will be made available in multiple North American jurisdictions, including New Jersey, Michigan, and West Virginia,” according to a statement.

Roth’s Engel applauds the deal, saying there are benefits in it for Inspired.

“RSI is unique vs U.S. iGaming peers, given its greater focus on iCasino customers than sports betting. With a higher quality user base, we see this agreement improving yields for Inspired’s iCasino content and helping the company sign future contracts,” says the analyst.