Valuation of Evolution

Abstract

This thesis aims to investigate whether the share price of Evolution AB, the Swedish publicly listed B2B online casino solutions provider, as of December 31st , 2021, is based on fundamentals. To derive a thorough base for the valuation, an overview of the company, online gambling market, trends and prospects is provided. Firstly, an in-depth strategic analysis of Evolution is conducted through the frameworks of PESTEL and Porter’s Five Forces. Subsequently, a financial analysis is presented where the historical performance of Evolution is analyzed as well as profitability gauges are compared to the industry averages. The findings from the strategic and financial analysis are compiled and displayed in a SWOT-analysis which is further used to derive a more accurate forecast for the Discounted Cash Flow model. Through the use of the DCF model, an implied share price is presented followed by sensitivity analysis which examines the impact of assumptions regarding the applied discount rate, terminal growth rate and tax rate. Additionally, a scenario analysis in the form of a bull and bear case is presented to capture the more optimistic and conservative assumptions, where the identified threats and opportunities from the SWOT-analysis are implemented. In conjunction with the DCF, a listed peer analysis, regression analysis and precedent transaction analysis is performed to complement our valuation. Our findings suggest that Evolution AB is fundamentally valued. Although this implies a significant premium to its peers, the discrepancy is validated when considering the superior financial performance of the company.