Stocks’ Details

Diginex Limited

Businesses are Yet to Gain Steam: Diginex Limited (NASDAQ: EQOS) is a digital assets company operating spot crypto currency exchange – EQUOS.io. The company was formed through a merger with 8i Enterprises Acquisition (with JFK) which was completed on October 1, 2020. It had raised about $50 million through equity offering and was subsequently listed on NASDAQ. The company caters to institutional investors with crypto currency exchange and over-the-counter trading. EQOS plans to launch its first derivative product, Bitcoin futures. The company is currently targeting Asia and Europe and it is likely to tap the US market as well, going forward. EQOS also plans to foray into borrowing and lending of crypto currency business.

Key Financials (Source: Company Reports)

Outlook: The management is expecting crypto currency exchange business to be the primary driver for growth. It is projecting Exchange Revenue business to grow to $10 million by FY21 and $105.1 million by FY22. Its Capital Markets business is expected to see revenue of $5.7 million by FY21 and $8.7 million by FY22.

Stock Recommendation: EQOS has recently been listed on NASDAQ. EQOS reported revenue of $493k during the nine months ending March 2020. It had reported an operating loss of $29.56 million in the same period.  The stock saw one-month return of 48.36% and 3-month return of 55.78% as of December 29, 2020. The stock is currently trading towards its 52-week high price of $15.00. On the technical analysis side, the stock has a resistance level of $15.91 and a support level of $12.3. On a TTM basis, the stock has a P/BV multiple of 2.2x, trading higher than the Industry Median of 1.00x, Considering the significant losses, absence of stable revenues, steep price movement in the past months and key investment risks, we suggest investors to “Avoid” the stock at the closing price of $14.02, down by 11.71% as on December 29, 2020.

Drive Shack Inc.

Decline in Revenues and Losses:  Drive Shack Inc. (NYSE: DS) operates golf courses and entertainment businesses. The company commenced outdoor golf ventures in 2018 with 4 Drive Shack Venues. DS plans to open 7 Puttery Venues in 2021. The new concept provides high-tech mini-indoor golf with bars and lounges. DS is developing 1 additional Drive Shack Venue in Manhattan. It had opened next generation (Gen 2.0) golf venues in Raleigh, Richmond and West Palm Beach. Revenue for nine months ending Sep’20 declined by 20.2% (on YoY basis) to $159.7 million, affected by lockdown restrictions. DS re-opened its golf courses in West Palm Beach, Richmond and Raleigh during the second quarter. Drive Shack sold-off its Rancho San Joaquin golf course, located in Irvine, California. It had received net proceeds of $33.6 million from the transaction.

Key Financials Q3 FY20 (Source: Company Reports) 

Outlook: DS plans to transform from a traditional golf business to a food & beverage and tech-based entertainment business. Its plan to build 2 Puttery Venues in Dallas and Charlotte by 2021 is underway. DS is likely to open 5 additional Puttery Venues by 2021 and 10 venues by 2022. The company is expecting to generate a yield of 25%-40% from such indoor mini-golf venues. DS had unrestricted cash on hand of $44 million as of Oct’20. The company believes it has adequate liquidity to support growth initiatives through the end of Q1 FY21. DS is expecting to generate an EBITDA of $48 million from 17 Puttery Venues and $21 million from 5 DS Venues by 2022.

Stock Recommendation: The stock is trading at 1-month and 3-month returns of 46.91% and 105.17%, respectively. DS is trading slightly lower than the average of its 52-week high price of $4.19 and 52-week low price of $0.86. The mandatory restrictions severely impacted the operations of the company as all of its golf courses begun to fully open only during the fourth quarter. The company reported a net loss of $66.3 million during Sep’20 quarter, owing to an impairment charge of $24.0 million in its golf properties. On the technical analysis front, the stock has a resistance level of $3.29 and a support level of $1.61. Considering the current developments amid Covid-19 and steep price movement, we are of the view that the stock has factored in most of the positives of the company at current trading levels. Hence, we suggest investors to wait for better entry levels and give an “Expensive” rating on the stock at the closing price of $2.38, down by 8.46% on December 29, 2020. 

Super League Gaming, Inc.

Increased spend on technology and marketing: Super League Gaming, Inc. (NASDAQ: SLGG) operates as a gaming community and platform. SLGG launched gaming broadcasting services through Virtualis Studios. The cloud-based platform remotely captures player cam feeds and livestream gameplay. The company claims it had achieved ever highest revenue growth in Q3FY20. Its registered users increased to 2.3 million as of Sep’20 surpassing the full-year 2020 target of 2 million. The company’s remote live streaming platform saw increased offtake by popular brands like Tencent, Capcom, Topgolf, Gen.G Esports, among others. SLGG delivered about 191 episodes of original content across Snapchat and Instagram, which is three times higher than in full-year 2019. The company’s Winter Wonderland was launched on-time during holidays which had reached peak numbers with 130,000 active players and 20,000 concurrent players. However, SLGG is yet to achieve profitability. The company’s top-line growth is yet to catch-up with fixed expenses. It had spent a sizeable amount on marketing and sales activity and technology/ infrastructure. The company reported a net loss of about $14.0 million during YTD Sep’20.

Financial Highlights Q3 FY20 (Source: Company Reports)

Outlook: The company is likely to continue to focus on advertising and content sales revenues through events, gameshows, and partnerships. It had recently signed a broadcasting deal with Indiana Esports Development LLC. The company began to drive revenues through direct player monetization akin to in-game transaction model.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The stock witnessed a one-month and 3-month returns of 59.04% and 66.11%, respectively. It is currently trading lower than the average of its 52-week high price of $6.50 and 52-weeks’ low price of $1.30. On the technical analysis, the stock has a resistance level of $3.47 and a support level of $2.17. The company’s revenue showed robust growth but is yet to report profitability. It had incurred a net loss of $14.0 million due to a sizeable spend on marketing activities and technology & infrastructure for its platform. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price, with a correction of low double-digit (in percentage terms). Considering the steep movement in prices, net losses, and valuation, we suggest investors to “Avoid” the stock at the closing price of $2.99, down by 8.0% on December 29, 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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