On Thursday, Goldman Sachs adjusted its stance on Evolution Gaming Group (ST:EVOG) AB (EVO:SS) (OTC: EVGGF), downgrading the company's stock rating from Buy to Neutral and lowering the price target to SEK 1,000 from the previous SEK 1,420. The move follows a period of slowed growth for the leading online live casino provider and a series of missed expectations in recent quarters.
Evolution Gaming has been recognized as a primary benefactor of the online live casino industry's long-term growth, boasting a compound annual growth rate (CAGR) of 43% in live casino revenue from 2019 to 2023. The company has historically outperformed expectations and maintained an attractive financial profile, with approximately 70% EBITDA margins and a return on invested capital (ROIC) exceeding 70%.
Despite this strong performance, the company's growth has decelerated compared to its historical trajectory, failing to meet Goldman Sachs' forecasts in the last two quarters. This underperformance has prompted the firm to revise its projections, which now sit below market consensus. Compounding the issue are emerging challenges, such as cyber attacks in Asia, which obscure the potential for growth to reaccelerate.
Adding to the concerns, the UK Gambling Commission has initiated a review of Evolution's license, a development that heightens existing investor worries regarding the visibility, sustainability, and quality of the company's future earnings. This regulatory scrutiny further complicates the outlook for Evolution Gaming, as it could impact the company's operations in one of its key markets.
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