Here's why eBet Limited is still worth a punt even after its strong run

eBet Limited (ASX:EBT) has been under the radar of most investors. But its good interim result and growth potential makes this gem hard to ignore.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors have warmed to eBet Limited (ASX: EBT) with the stock jumping after the gaming systems company posted good top and bottom line growth in the first half and gave a reassuring outlook.

It's great to be in the winner's circle. The stock gained over 2% to $3.99 ahead of the close on Monday, this on the back of a 31% surge in pre-tax profit to $2.1 million as revenue lifted 6% to $22.4 million.

More pleasingly, gross margin expanded to 74% from 67% in the six months to end December 2014, when compared to the first half of 2013-14.

Worries about the negative impact from the falling Australian dollar, which puts upward price pressure on imported goods, have also been allayed. Management said that the unfavorable exchange rate has little impact on demand for its solutions as the vast majority of its products are sourced locally.

This may even give eBet a competitive edge against rivals that are more reliant on imports.

Another thing to like about eBet is the 3 percentage point increase in recurring revenue to 56% of total revenue and its strong cash generation.

Operational cash flow jumped by 54% to $3.7 million in the first half, and eBet's ability to spin out cash is one of the key reasons why I think eBet should be added to most portfolios.

However, it isn't all good news. Sales came in around 5% below my expectation and that has a bigger impact on my bottom line estimate because of its operating leverage.

This has forced me to lower my EBITDA estimate by 17% to $7.7 million and 19% for 2014-15 and 2015-16, respectively.

But even then, my discounted cash flow valuation of $4.55 is still comfortably ahead of the current share price. This doesn't include potential acquisitions and I suspect the company will be making more deals this calendar year following the takeover of Flexi-NET and CDOL.

What's more, the stock is trading on undemanding multiples despite its 36% surge in value over the past year. Based on my forecast, eBet is currently trading on a 2015-16 price earnings of 14.7 times, or around a 12% discount to the sector.

eBet provides networking and management systems to electronic gaming machine venue operators. The company also supplies stored value card systems and business intelligence software for the industry.

Motley Fool contributor Brendon Lau owns shares in eBet. Follow me on twitter https://twitter.com/brenlau

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »