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On Tuesday, B.Riley analysts initiated coverage on Inspired Entertainment Inc (NASDAQ:INSE), a company known for its content creation and integrated-channel approach across its product portfolio. Currently trading at $7.02, with a market capitalization of $189 million, the stock is trading near its 52-week low of $6.70. The firm assigned a Buy rating to the stock, accompanied by a price target of $13.00, signaling confidence in the company's growth prospects. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value assessment.
Inspired Entertainment's diversified business model, which includes both land-based and digital operations, was highlighted as a key strength. The company boasts impressive gross profit margins of 69% and maintains healthy liquidity with a current ratio of 1.54. According to B.Riley, the company's stability is bolstered by long-term, participation-based contracts that are expected to make up 85% of its revenue by 2024. The land-based segment, which encompasses gaming and leisure and is projected to account for 71% of 2024 sales, is recognized for providing consistent cash flow. The analysts noted that an improved lower-capital expenditure model is enhancing free cash flow (FCF) generation. For deeper insights into Inspired Entertainment's financial health and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, which covers key metrics and expert analysis.
The company's digital gaming terminal business, particularly its operations in UK and Greek retail locations, was pointed out as undervalued by the market. This segment is known for its high customer retention and is making strides in North America. B.Riley analysts believe that this part of Inspired Entertainment's portfolio holds a leading market position due to its very sticky participation-based model.
Furthermore, the analysts expect the company's digital businesses, which include virtual sports and interactive platforms, to be a significant growth driver. While these businesses accounted for 29% of the company's revenue in 2024, they are forecasted to contribute around 60% of total EBITDA by the end of 2025, after corporate costs are factored in. This prediction underscores the high-margin nature of the digital segment and its increasing importance to Inspired Entertainment's overall financial health.
B.Riley's coverage on Inspired Entertainment reflects an optimistic outlook on the company's future performance, with a particular emphasis on the potential of its digital offerings and the stability provided by its long-term contracts. The new price target of $13.00 aligns with the broader analyst consensus, as InvestingPro data shows analyst targets ranging from $11 to $16 per share. Trading at a P/E ratio of just 3.85x, the stock presents an intriguing value proposition, though investors should note that net income is expected to decrease this year. The company's next earnings report is scheduled for May 7, 2025, which could be a crucial catalyst for the stock's performance.
In other recent news, Inspired Entertainment reported strong fourth-quarter earnings, with revenue reaching $83 million, surpassing analyst estimates of $81.36 million. However, the company missed earnings per share expectations, posting an adjusted EPS of $0.16, below the forecasted $0.26. The Interactive segment was a key contributor, with revenue increasing 45% year-over-year to $11.6 million, and adjusted EBITDA more than doubling to $8.2 million. Despite challenges in the Virtual Sports segment, which saw a 22% decline in revenue, overall adjusted EBITDA grew 22% year-over-year to $30.9 million.
For the full year 2024, Inspired Entertainment's total revenue was $297.1 million, marking a 2% increase excluding low-margin gaming hardware sales. Adjusted EBITDA for the year rose by 1% to $100.1 million. In other developments, Inspired Entertainment extended its partnership with Buzz Bingo, continuing to supply gaming terminals to 79 venues across Britain. Additionally, Fitch Ratings downgraded the company's Long-Term Issuer Default Rating to 'B-' from 'B', placing it on Rating Watch Negative due to liquidity concerns and the absence of a comprehensive refinancing plan. Fitch highlighted the need for Inspired to address its refinancing by June 2025 to avoid further downgrades.
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