Bally’s Rips Higher on Deal-Making, Macquarie Says Growth Story Not Fully Appreciated

Posted on: November 19, 2020, 09:38h. 

Last updated on: November 19, 2020, 12:02h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Bally’s Corp. (NYSE:BALY) are up more than 20 percent in midday trading. The rally comes a day after the company announced a potentially transformative move into sports broadcasting.

Thursday’s surge in Bally’s stock takes it to by far its highest levels since its early 2019 initial public offering (IPO) as Twin River Worldwide Holdings (TRWH). It easily makes it today’s best-performing gaming equity listed in the US.

Late Wednesday, the company announced it sealed a deal with Sinclair Broadcasting Group to apply the Bally’s brand to 21 regional sports networks (RSNs). This brings about the most overt combination to date between a broadcaster and a gaming operator. Obviously, investors are cheering the move, and Wall Street added some fuel to the fire with Macquarie initiating coverage of Bally’s with an “outperform” rating.

The PF portfolio will give the company access to eight states live with sports/iGaming, including New Jersey, Colorado, Mississippi and Illinois,” said the research firm. “The company already has market access agreements with top online platforms, including DraftKings, Fanduel, Pointsbet, etc. as well as its omni-channel database of 14 million members.”

Bally’s also wrapped up the $25 million purchase of its eponymous property on the Atlantic City, NJ boardwalk from Caesars Entertainment (NASDAQ:CZR). When pending acquisitions close, the Rhode Island-based operator will have 14 casinos across 10 states, essentially all of which will be renamed Bally’s at some point next year.

Not Fully Loved

Macquarie points out that five years ago, the company now known as Bally’s controlled just two gaming venues. That number is steadily increasing via bolt-on acquisitions, including the 2019 purchase of Dover Downs Gaming & Entertainment.

The operator’s been highly acquisitive this year, announcing or completing property purchases across the country, many of which give the company footprints in markets where sports betting is taking off, including Colorado, Illinois, and Indiana, among others.

Bally’s agreement with Sinclair jibes with the sports wagering push, as the 21 RSNs that will eventually bear the gaming company’s name. They own broadcast rights for 45 Major League Baseball (MLB), NBA, and NHL teams. Separately Wednesday, Bally’s said it’s paying $125 million in cash and stock to purchase sports wagering platform provider Bet.Works, a move that speeds the buyer’s efforts to be a vertically integrated player in the industry.

Even with all the deal-making, Macquarie says Bally’s is a mid-sized value name that’s not yet fully appreciated by the broader investment community.

“Overall, we believe shares are not reflecting the growth in the newly acquired assets and the sport/iGaming exposure. Additionally, we believe the Street has not adjusted for recent acquisitions,” said the research firm.

‘Hidden Treasure’

When factoring the all-important total addressable market (TAM), a point of emphasis among analysts covering gaming companies with online and mobile sports betting exposure, Macquarie sees value in Bally’s.

“With online peers trading at ~3x 2022 estimated enterprise value/sales, we believe online gaming is the hidden treasure of the company. Our 2025 estimated online TAM of $16 billion can be worth $6.50 per share, in our view,” said the analysts.

They estimate Bally’s brick-and-mortar business to be worth $28 a share, and expect the operator will win back market share in New Jersey and Rhode Island.