Full Year Profitability on the Horizon: Raising Price Target

Q1 Beats: Delivering on Its Strategy

Significant Upside Potential From These Elevated Levels

Poised for Profitability

Consumer Cyclical

Travel & Leisure

Codere Online Luxembourg S.A.

Investment Appraisal 
The company reported a strong third quarter with revenue of â‚¬43.2 million, beating our estimate of â‚¬37.0 million by 16.8%. The company achieved adj. EBITDA breakeven in the quarter, which was substantially better than our estimate of a â‚¬6.2 million loss. Figure #1 Q3 Results illustrates the quarterly performance. Although the companyâ€™s adj. EBITDA was breakeven in the quarter, we still expect some quarters of adj. EBITDA losses ahead before the company turns cash flow positive on a go-forward basis.
The strong Q3 performance was primarily due to impressive 63% revenue growth in Mexico and 27% revenue growth in Spain, despite a tight regulatory environment. Revenue growth in both regions was driven by a combination of increased active users and increased spend per customer. Moreover, the company decreased its marketing spend, compared with the prior year period, which contributed to the improved adj. EBITDA performance. Notably, Spain contributed â‚¬8.2 million of adj. EBITDA, representing 43% margins. Notably, the company benefits from lower tax rates in Spain, compared with other regions. Additionally, a significant portion of its platform and technology costs are fixed, resulting in significant operating leverage in Spain. We believe there could also be some shakeout of smaller Spanish competitors on the horizon, given the restrictions on marketing in the country.
Although the results in Q3 appear to indicate strong momentum, management did note that the launch of operations in the Province of Mendoza, Argentina, is being delayed from late 2024 to likely early 2025. The delay is simply a result of prioritization of other projects in what has been a busy year of expansion. Importantly, the company is also seeking a license in the Province of Buenos Aires, the largest opportunity in Argentina. In the meantime, the company already operates in the City of Buenos Aires, which we believe could help build brand awareness ahead of a potential launch in the greater Province.
Management raised full-year 2023 guidance to a range of â‚¬155 million to â‚¬165 million, up from â‚¬140 million to â‚¬150 million. Adj. EBITDA guidance was raised to a loss ranging from â‚¬10 million to â‚¬18 million, compared with a prior guided loss in the range of â‚¬15 million to â‚¬25 million. We are flowing through the upside revenue variance from Q3 to our full year forecast, resulting in an updated revenue forecast of â‚¬160.8 million, above our previous forecast of â‚¬154.6 million. For Q4, we are increasing our forecast for Marketing expense, as we expect the company to step up customer acquisition efforts during the Holiday months. We are increasing our Q4 Marketing expense forecast by â‚¬3 million, resulting in an adj. EBITDA forecast of a â‚¬6.2 million loss in the quarter. However, given the upside in the companyâ€™s Q3 adj. EBITDA, our full year forecast is now a loss of â‚¬13.8 million, near the midpoint of managementâ€™s guidance and above our previous estimate of a loss of â‚¬17.0. 
As for 2024, we are raising our revenue forecast from â‚¬166.0 million to â‚¬172.0 million, due to the companyâ€™s strong momentum heading towards the end of 2023. We are also slightly raising our forecast for adj. EBITDA from â‚¬1.5 million to â‚¬3.0 million. Importantly, for the last several quarters, management has maintained that the company is expected to be adj. EBITDA positive in 2024. The changes to our forecast our illustrated in Figure #2 Forecast Revisions.
As of September 30, the company had â‚¬43 million in cash and no long-term debt. We believe the companyâ€™s significant cash balance will be sufficient to fund its growth efforts until it reaches profitability, expected in 2024.
Near current levels, the CDRO shares trade at 0.6 times enterprise value to our 2024 revenue forecast, below peers. Despite a capital restrictive environment that has posed challenges for some of the companyâ€™s peers, Codere Online does not appear to be in need of funding to execute its growth strategy. As such, we believe the company is trading at a multiple that does not reflect its enviable liquidity position and path to profitability. Our price target of $9 reflects a target EV/2024 revenue multiple in line with peers, at roughly 2 times, which we believe is more in line with the companyâ€™s growth prospects. The shares are rated Outperform.
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Figure #1 Q3 Results
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/cdro-q3results-11-15-23.jpg" style="width: 427px;height: 428px" />
Source: company filings and Noble estimates
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Figure #2 Forecast Revisions
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/cdro-forecast-revisions-11-15-23.jpg" style="width: 627px;height: 321px" />
Source: Noble estimates

Codere Online Luxembourg S.A. (CDRO)

Another Beat And Raise Quarter

Fundamental Analysis:

Rating: Log in to view

Full Year Profitability on the Horizon: Raising Price Target (CDRO)

Q1 Beats: Delivering on Its Strategy (CDRO)

Significant Upside Potential From These Elevated Levels (CDRO)

Poised for Profitability (CDRO)