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On Thursday, Evolution AB (EVO:SS) (OTC:EVGGF) saw its stock rating upgraded by Deutsche Bank (ETR:DBKGn) from Sell to Hold, with a new price target set at SEK689.00. Evolution AB, a company specializing in providing Live Casino (EPA:CASP) solutions, has been grappling with increased regulatory costs that have negatively impacted its revenue and margins. The firm’s European unregulated revenues have been particularly affected.
Evolution AB has recently been under investigation by the UK Gambling Commission due to allegations of supplying its Live Casino product to illegal offshore gambling operators. In response to these challenges, the company has begun to enforce stricter regulatory compliance measures across other regulated European markets, starting from the beginning of February.
The implementation of these compliance measures has resulted in a two-month downturn in the first quarter, with an estimated adverse effect of approximately 1% on the Group’s Revenues for each month of ringfencing. According to the analyst’s comments, this could translate to a 10% incremental reduction in Group Revenues from April through to the end of January.
The decision by Deutsche Bank to upgrade the stock rating comes after Evolution AB’s announcement of a relatively weak quarter, influenced by the aforementioned factors. The company’s proactive approach to addressing regulatory issues by applying the same level of scrutiny across its European operations has been noted by the analysts. Despite the immediate financial impacts, this adjustment in compliance strategy appears to be a significant factor in the revised rating and price target for the company’s stock.
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