Thread by @saharainvesting

A thread on my number one holding...

It's small and very illiquid, but I'm probably done buying now so happy to bring some attention to it!

GAN is somewhat known in the European small cap community, but I suspect not on the other side of the pond. So here's the low down...

GAN supplies player account management software (PAM) to the online gaming and sports betting industry.

I often find it hard to understand what different types of software do, as it's rarely made clear. So here is a non-exhaustive list to illustrate the importance of PAMs:

- Houses all customer data physically within the state
- Bears responsibility for identity verification, processing payments, determining that the user is located in a place where gambling is legal
- Produces regulatory reports and is licensed by each states regulators

- Provides a dashboard to operators for monitoring purposes
- Integrates with myriad online casino games and third-party (e.g. Kambi) or proprietary sports books. Effectively serving as the operators platform.

I'm sure I have missed some, but these are the important ones imo.

GAN supplies this software primarily in the US, where online gambling is booming as a result of the repeal of PASPA in 2018.

This left it to states to legalise online gambling themselves, rather than being decided federally. States are keen to do this, mainly for tax $$.

So far New Jersey is the main state for online gambling, but Pennsylvania and Indiana are growing quickly. Michigan has also recently legalised.

GAN's main client is FanDuel (owned by Flutter), which is currently the leader in sports betting in New Jersey (~44% market share) and Pennsylvania (~56% share), and second to DraftKings in Indiana.

They also have smaller clients in these states (e.g. Parx, Borgata).

GAN's business model is to share in its clients' revenue and they have guided to an 8-10% take rate. So as FanDuel continues to grow, the cash flows straight into GAN.

GAN expects to more than double revenue this year from £10m in 2018 due to the rapid pace of growth of the market. They also state that drop through margins are 65-75%.

GAN was slightly loss making in 2018, but should easily reach 30% margins within a couple years.

The main risk is losing FanDuel as a client, as this is where the bulk of GAN's growth is coming from.

It has taken GAN 15 years and tens of millions of dollars to build its platform, so replicating it is not easy to do.

I believe it is far more likely that Flutter acquires GAN at some point in the next year. I would say that this is by far the most likely outcome of an investment in GAN.

If the company does survive as an independent entity, they intend to pursue a NASDAQ listing in 2020.

A quick note on management. The CEO is Dermot Smurfit, a member of the Smurfit family (one of the richest families in Ireland). The Board also has Smurfit representation. Between them the family own something like 30% of the company.

Finally, the company was granted an extremely valuable patent in 2014, which links land-based casinos' loyalty programs to similar online programs. This patent has been successfully defended and GAN earned £3m in licensing fees for it in 1H19, with more to come.

So what are you paying for all this?

GAN currently has a market cap of £139m. They have around £10m of net cash and will likely do £20-30m of revenue in 2019.

I think it's trading at less than 4x 2020 revenue. IMO this is a bargain considering the business's economics.

There's a lot more I could say about GAN but have tried to stick to the salient points!

Welcome comment from the many GAN experts @dividendblower @Symmetry_Invest @Arquitect3 @NouAlpha @aceglobalvalue @henrikinvest @icebergdevalor