June 27, 2017 - 10:40am EST by
2017 2018
Price: 0.23 EPS 0 0
Shares Out. (in M): 71 P/E 0 0
Market Cap (in $M): 21 P/FCF 0 0
Net Debt (in $M): -3 EBIT 0 0
TEV (in $M): 17 TEV/EBIT 0 0

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  • Micro Cap
  • Gaming
  • Overhang of Shares
  • SaaS
  • Orphan stock
  • Multi-bagger


We believe the common shares of GAN PLC (LSE: GAN, “GAN”) are materially mispriced orphan securities that won’t be orphaned much longer.  In addition, GAN’s shares have recently faced an overhang from uneconomic sellers that, to our knowledge, have now finished selling or are very close to finished.

This sets up, in our view, a compelling risk/reward for GAN’s shares.  We see 3-4x upside from today’s price of 23p per share to our estimated fair value of 75-100p, with a potential “free option” that could increase the upside to a fair value of 150p or more.


Why The Stock Is Cheap

We think GAN’s shares are cheap for two reasons.

First, GAN has recently faced an overhang of uneconomic selling that has dropped the share price from nearly 40p to 23p.  This share price decline has occurred despite an excellent set of operating results and very positive news flow.  To the best of our understanding, the uneconomic selling pressure has come primarily from three firms: (i) Seawolf Capital, which is liquidating its vehicle, (ii) Odey Capital Management, which has experienced redemptions ( and made the decision to exit most/all of its micro-cap portfolio, and (iii) a third firm that we understand to be a plain vanilla long-only fund.  As sometimes occurs in micro-caps, these shareholders used GAN’s recent results as an opportunity to get liquidity in the shares regardless of underlying business performance.  As happens when three sellers step to the table at once, the shares have not responded favorably.

Second, we view GAN as an orphan security.  The company was founded in Ireland, is listed in the UK, and substantially all of its operating business is in the US.  As a result, the company does not have a natural shareholder base.  The company does not appeal to Irish investors (it is not in the Irish index, has no operating business in Ireland, and is not listed in Dublin), to British investors (it is not in British indices, substantially all of its operating business is not in the UK, and until three weeks ago no British broker covered it), or to US investors (who have never heard of the company and who may find it difficult to invest in a micro-cap LSE-listed security).  As a result, GAN is a largely unknown or ignored security in all three countries.

Importantly, we believe both of these headwinds to GAN’s share price are set to reverse.

On the former, we believe the share overhang is now mostly or entirely gone.  Since May 25, Bloomberg shows that 12.2M shares have changed hands, or nearly 20% of the outstanding share count and more than 40% of the float.  The Bloomberg figures may include some double-counting, but the end-result is the same: we think both Seawolf and Odey have been bought out of their positions and that the third seller is now close to (or is) finished selling.  The 12.2M traded shares represent more shares traded in the last four weeks than were traded in the prior 52 weeks combined.

On the latter, GAN’s management team has made clear to investors – including on the firm’s most recent earnings call – that it is seeking a listing on NASDAQ.  GAN has disclosed it is in negotiations to appoint a mid-tier US advisory firm as its representative to facilitate a move to a US exchange.  In addition, GAN recently hired a US investor relations firm, The Equity Group, to begin introducing the company to US investors.  We believe there is a realistic chance that GAN lists in the US before year-end.  Should this happen, GAN will no longer be “orphaned” – it will be listed in the same country as its core operating business with a deep base of potentially-interested shareholders.  In our opinion, this would be a game-changer for GAN’s share liquidity and share price.

It is our view that this creates attractive catalysts for both the near-term and medium-term as (i) the market realizes the share overhang is gone and re-prices the shares to reflect the underlying business’s operating momentum and (ii) the company lists in a market with a more natural shareholder base before year-end 2017.


A High-Quality Business With A Real Moat

GAN PLC is a high-quality SAAS software company that is EBITDA profitable, has a real moat, generates recurring high-margin revenues, and is growing 30-50% per year on the top line.

The company operates a software platform that provides an integrated, turnkey, end-to-end online gaming ecosystem to casinos and casino operators.  GAN receives a revenue share from clients, so revenues are recurring and high-margin.  GAN’s business is extremely sticky with contracts lasting five years or longer and its software deeply embedded into casino operations.

GAN’s value proposition is significant.  GAN’s software offers casinos a side-by-side platform for both simulated (social) gaming and real-money gaming.  The simulated gaming platform, which makes up most of GAN’s business, is an arcade-style model where customers pay real money for credits that are then used to play games online (slots, table games, etc.).  GAN’s platform is white-labeled to each casino; our checks indicate that GAN offers the most in-demand games (licensed from gaming companies like Konami, etc.) and the highest-quality user experience.  The result is a win-win all the way round: the casino makes a stand-alone profit via its online platform, GAN makes a profit without spending a dime on customer acquisition (which the casinos pay for), and the casino floor benefits too as patrons have been shown to materially increase their loyalty to the casino they also play with online.

Based on this value proposition, our channel checks indicate that the sell-cycle for GAN’s platform has meaningfully reduced from 1-2 years to just a few months.  The industry has come to view GAN’s best-in-class product as a critical part of a casino’s omnichannel offering.

In addition to the simulated platform, GAN also offers a real money platform in states where real money online gaming is legal (three currently – New Jersey, Delaware, and Nevada).  GAN’s real money software platform has the #1 position in New Jersey with nearly 50% market share (its main client in NJ is Paddy Power Betfair; GAN also works with The Borgata and TEN).  GAN’s ability to seamlessly turn on a real money gaming platform for clients “future-proofs” each casino should additional states eventually approve real money gaming.  This value proposition is what has allowed GAN to attain a dominant market share in its niche, with even competitors admitting in our due diligence calls that GAN is “years ahead” of anyone else.

Of particular importance, GAN owns the US patent to integrate both simulated (social) online gaming and real money gaming with casino loyalty programs.  This is a material advantage for GAN as it seeks to win additional customers vis-à-vis the competition as casinos are laser-focused on ensuring the online experience enhances the on-premise operation.

This triple-moat of (i) scale, (ii) future-proofing for real money online gaming, and (iii) patented integration with casino loyalty programs has led to robust growth over the last 2-3 years:



Property Locations


Annual Property GGR ($M’s)

Empire City


New York








San Manuel





Maryland Live!










Isle of Capri





JACK Entertainment


Ohio, Michigan



Twin River


Rhode Island



Turning Stone


New York





New Jersey



Chicasaw Nation





The Borgata


New Jersey



Station Casinos





Sources: Liberum Securities, GAN PLC, Internal Estimates

GAN has one final advantage.  US regulators have made it effectively impossible for any gaming software provider to operate in the US that also operates in so-called “gray markets” outside the US.  In practice, this prevents potential European competitors from entering the US (because the European market, for now, is so much larger, it makes little sense to give up profits elsewhere to gain access to the US) and offers GAN a multi-year head start to win US customers and embed GAN’s software into those customers’ gaming ecosystems.  Eventually, the best path for those European companies to enter the US – should they decide to do so – may be simply to acquire GAN.  Similar European firms to GAN have been acquired for mid-teens EBITDA multiples.



Which brings us to valuation.

GAN’s CEO is Dermot Smurfit, scion of the billionaire Smurfit family that founded and built Smurfit Kappa Group plc, one of Europe’s leading corrugated packaging companies.  The Smurfit family owns 42% of GAN’s outstanding shares.  Dermot is a workaholic who is incentivized as much or more by personal reputation and a desire to prove himself to his family and peers than by Dollars or Euros.  He well understands that his personal reputation depends on GAN’s success.  It shows in his 24/7 commitment to his business.

GAN originally went public following the legalization of real money gaming in New Jersey.  At the time, it was anticipated that other states would follow in NJ’s footsteps.  That has yet to materialize.  As a result, we believe a portion of GAN’s shareholder base in the UK became fatigued as they invested behind a different thesis (i.e., real money gaming as opposed to simulated/social gaming) that was out of the company’s control.  We are pleased to see so many shares changing hands in the last few weeks as GAN’s shareholder base is refreshed.

To Dermot’s credit, he acknowledged the slower pace of state-by-state real money legalization and pivoted the company’s focus to simulated/social gaming.  This business model is more stable and isn’t subject to the same vicissitudes of state or federal gaming laws, while still representing a substantial growth opportunity.

In 2017, we forecast GAN to reach more than $10M in revenues.  The company is currently EBITDA profitable and expects to be cash flow positive by year-end.  We estimate GAN’s revenues to be close to $15M in 2018.  We anticipate revenue growth of 30-50% per annum for the foreseeable future driven by rising per player revenue, additional customer wins (two of the company’s four largest clients are anticipated to launch in June/July 2017), increased customer acquisition spending by the casinos, and continued growth in the New Jersey real money online gaming market (+30% YTD in 2017).

The company has 70.5M shares outstanding at 23p each, for a market cap of $20.6M at 1.27 GBP/USD.  The company has a clean balance sheet with net cash of $3.2M and no debt as of its most recent filings (though we anticipate a few million of debt should PA legalize real money gaming and require an entrance fee to access the market).  This puts GAN’s EV/sales multiple at 1.2x, or 1.4x including the PA entrance fee.  As noted in other write-ups, high-quality SAAS companies in the US with positive EBITDA and rapidly-growing top-lines often trade for 4-7x EV/sales.  This ought to be particularly true for GAN, which may make a logical acquisition target for a larger US gaming player.  Using this peer range, we view GAN’s intrinsic value as 75-100p per share, or 3-4x the current share price.

As a final check on valuation, we have heard scuttlebutt from four different contacts that GAN was subject to a takeover offer at more than twice the current share price earlier this year – and that GAN turned down the offer as GAN’s management views intrinsic value as materially higher and is encouraged by the company’s business momentum.  This scuttlebutt appears to be well-known in the industry.  We think it is also supportive of our 75-100p per share valuation range.


The Free Option

Finally, it is worth mentioning the “free option” under which GAN could be worth materially more than our fair value estimate above.

GAN was originally viewed by the investment community as a way to play the state-by-state legalization of real money online gaming in the US.  Real money gaming operations are significantly more profitable to GAN than simulated/social gaming operations.  Importantly, should additional states move forward with real money online gaming, the catalyst to GAN would be powerful both from near-term revenues and profits as well as from additional momentum in other states as casinos “future-proof” their operations for eventual real money legalization.

At the moment, the two most likely states to pass real money online gaming are Pennsylvania and Illinois (with New York also a possibility).  This legislation is seen as an effective way to raise revenue in states that desperately need to close budget shortfalls.

In Illinois, the State Senate recently approved online gaming legislation by an overwhelming vote of 42-10.  It is not clear whether the legislation is supported in the State House or by the Governor.

Pennsylvania is even more interesting.  The State legislature passed a budget that included revenue line items from online gaming.  Since then, both the State House and the State Senate have passed online gaming bills – and the Governor has said he wants to sign online gaming into law.

The two bills, however, need to be reconciled with disagreement over Video Gaming Terminals (“VGT’s”) and the tax rate for online gaming.  Interestingly, the State Senate (which had never previously passed an online gaming bill) voted in favor 38-12, whereas the State House vote on much more sweeping legislation was closer (102-89) despite having passed online gaming legislation multiple times in the past.

Should the PA State House be willing to scale back its legislation to exclude VGT’s and to raise the tax rate to an acceptable middle-ground, we think the legislation would be viable in both the PA State House and PA State Senate.  Nothing is guaranteed, but should Pennsylvania’s bill cross the finish line, GAN is extremely well-positioned given its long-standing relationship with Parx Casino, Pennsylvania’s largest casino operation.  We also note that New York may come under pressure to legalize real money gaming should its neighbor do so - and that GAN already has multiple New York-based clients.

We estimate that should Pennsylvania approve real money gaming, GAN could do $10-12M run-rate annual EBITDA within eighteen months.  Using a mid-teens EBITDA multiple, this would value the shares at 150p+ apiece.  Should other states follow suit, the “blue sky” scenario is even higher.



As with all investments, there are risks to an investment in GAN.

We may be wrong about the share overhang being largely cleared, and sellers may still remain.  We may be wrong about GAN’s ability to list in the US.  There could be delays in winning or onboarding new US clients.  And of course, our ability to forecast the actions of state legislatures is close to nil.  We think there is a reasonable chance that one or more states legalizes real money gaming – perhaps in the very near-term – but such an outcome is not core to our thesis.  It is simply a “free” option as legislative actions are near-impossible to predict.

Rather, we view GAN as a high-quality, growing, profitable software business with a moat, a clean balance sheet, strong management, sticky customers, and a significant runway.  As investors find it and do their homework, we think an opportunity exists for a material mispricing in the shares to be corrected.  This makes, to us, for a compelling risk/reward.




The author of this posting and related persons or entities ("Author") currently holds a long position in this security.  Author may purchase additional shares, or sell some or all of Author's shares, at any time.  Author has no obligation to inform anyone of any changes to Author's view of GAN LN.  Please consult your financial, legal, and/or tax advisors before making any investment decisions.  While the Author has tried to present facts it believes are accurate, the Author makes no representation as to the accuracy or completeness of any information contained in this note.  The reader agrees not to invest based on this note, and to perform his or her own due diligence and research before taking a position in GAN LN.  READER AGREES TO HOLD AUTHOR HARMLESS AND HEREBY WAIVES ANY CAUSES OF ACTION AGAINST AUTHOR RELATED TO THE NOTE ABOVE.  As with all investments, caveat emptor.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


  • Continued strong operating performance, including additional customer wins and launches.
  • The investment community realizing the share overhang in the stock is gone or nearly gone.
  • A listing of GAN's shares in the US on the NASDAQ to appeal to a more natural shareholder base for the company.
  • One or more states legalizing real money online gaming.
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