r/valueinvesting
Evolution revisited
Evolution AB stock is down and growth negative due to EU regulation, but author sees attractive valuation with FX tailwinds, Latam/US growth, and aggressive buybacks.
- FX headwinds disappearing after Q1 2025, creating a 4-5% tailwind going forward
- Latam and USA markets growing well, expected to offset European losses
- Aggressive share buybacks at 0.3-0.5% per week, very brisk pace
- Europe regulation is effectively a soft ban: strict KYC, low betting limits, ad restrictions, and German refund laws
- Growth has turned negative and most bullish substacks have exited their positions
- USA expansion kneecapped by Vegas licensing issues and Galaxy buyout falling through, likely due to lobbying
Since some good years now there were many posts about evolution ab, which was trading at very reasonable valuation with good growth.
The stock has moved only one direction, and growth has gone negative, most bullish substacks sold their shares, and nobody cares anymore.
I think it’s the moment to revisit the thesis, since the price, although higher than it used to be, is still highly attractive.
The biggest problem is europe, where regulation basically now means soft ban. Players have to be anal probed every time they want to place a bet, the betting limits are laughably low, any advertising is almost completely restricted, not to mention the insane german laws being passed around in the space where everyone that lost at online gambling can get a refund while the anyone that made money can keep them.
I think things are looking up for evolution though, to some extent.
The biggest is fx. After q1 25, the usd plummeted and it’s been somewhat stable since then.
So with q2, that headwind disappears, meaning a 4-5% tailwind vs q1.
Latam + usa are growing well, and I think will be able to offset the europe losses.
They are buying back 0.3-0.5% of shares per week, a very brisk pace.
The usa expansion is kneecapped, I think that the bad news of the galaxy buyout falling off will present an even better buying opportunity rhan now. Management said basically that they will not comply with the requirements for vegas (getting our of india). I’m sure vegas sees them as a massive threat (which they are), some serious lobbying is probably going on to stop them from getting that license.
They didn’t pay dividend this year.
Right. People have been whining about the dividend for so long that they thought they have to do it.
Imo it was perfectly fine. To have a 30-50% dedicated to the dividend, and do other things with the rest as needed. It’s like a promise of financial discipline.
What other things? Where are they allocating the capital?
Buybacks, acquisitions.
Yes. Should be back to double digit growth next year and is still very cheap. Dividend cut was a blessing, buybacks are much better here than paying withholding taxes.
yep, great company and it's very cheap, indeed
exactly , EVO is my biggest position right now
I finally understand why Buffett and Munger had never invested in gambling companies. They said they hate sinners but I know it's bcuz it's not profittable and stable.
If you want pick and shovels company for gambling (mostly betting though), without regulations nightmare there is a better alternative - Genius Sports. Not so crazy cheap as it was month ago, but still good entry point. I owned Evolution previously and sold it at a slight loss due to insane industry regulations, requirements, illegal markets, also company is being traded on Swedish stock exchange which is bs comparing to NYSE.
I’m not so convinced. Where is their profitability? Yes, they have access to some more or less exclusive licenses, but they have to pay a ton for them.
Of course it's not cash printing company (yet) as Evolution, forgot to mention that.