Pollard Banknote Ltd. (TSX: PBL) is majorly engaged in the manufacturing, development, and sale of lottery and charitable gaming products throughout the world. The company generates the majority of its revenue from the sale of Instant tickets. 

Key highlights

• New license to its subsidiary: On April 2, 2022, the company informed that one of its subsidiaries: Diamond Game, received an electronic instant bingo license issued by the Attorney General of the State of Ohio. This license will authorize the company to provide charitable electronic insight bingo machines, which are also known as E-bingo or electronic pull tables across the state of Ohio.

• Increased in Adjusted EBITDA: For FY21, the company reported an increase in its adjusted EBITDA to CAD 84.0 million as compared to the adjusted EBITDA of CAD 80.6 million in FY20. In particular, the company’s eGaming systems segments reported an increase in the adjusted EBITDA of more than 200% to CAD 19.7 million for FY21 vs CAD 6.4 million in pcp.

• Brighter outlook: The group has witnessed the highest level of revenue along with the sales of instant tickets especially in the US in FY21, and the company estimates the trend to continue in the near future. The recent surge in demand for more products is enabling the company to diversify its product portfolio, and a few of the products such as charitable and eGaming are expected to be the vital contributor to the financial success in FY22.
  

• Debt management: For Q4FY21, the group posted a lower Debt/Equity ratio of 0.64x as compared to the industry median of 0.96x. The % of Long term Debt to total capital for Q4FY21 of the company stood at 37.1% which is lower than the industry median of 45.2%.
  

Risks associated with investment

The majority of the company's operational risks are related to COVID-19 restrictions and lockdowns, foreign exchange volatility, credit risks, and liquidity risks, to name a few. Further, the rising interest rates can hamper consumer spending on leisure and discretionary activities, which could dampen the company’s financial health. 

Financial overview of FY21 (Expressed in thousands of CAD)

 Source: Company Filing

• For FY21, the company reported an increase of 10.8% in its total revenue to CAD 459.01 million vs CAD 414.13 million in the pcp. The increased revenue from Lotteries and charitable gaming across the US region to CAD 272.98 million in the FY21 vs 250.36 million in the pcp, boosted the total sales in FY21 of the company.

• The income from operations declined to CAD 33.51 million in FY21 as compared to CAD 50.04 million in FY20. The increase in administration expenses to CAD 47.21 million in FY21 vs CAD 40.31 million in FY20, pulled down the income from operation in FY21.

• The income before income taxes dropped to CAD 27.11 million in the FY21 as compared to CAD 46.14 million in the FY20. 

• For FY21, the company reported the Net Income of CAD 19.70 million against CAD 33.28 million in FY20.
  

 Valuation Methodology (Illustrative): EV to Sales based valuation

Stock recommendation 

The company recently declared a dividend of CAD 0.04 per common share for the period January 1, 2022, to March 31, 2022. The group recorded the highest ever revenue of CAD 459.0 million, up by 10.8% from the FY20, and the adjusted EBITDA  of CAD 84.0 million which is higher than 4.2% from FY22. Further, all the business segments reported an increase in revenues, and the promising outlook presented by the management increases the confidence of the investors in the company.  

On the valuation front, the stock is measured on the EV to Sales based multiple and we have considered Century Casinos Inc., Full House Resorts Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing market price of CAD 23.94 on April 07, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April  07, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

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