cherry (cherb.st)

COMPANY ANALYSIS 31 August 2016

Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report.

Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel +46 8-545 013 30. E-post: [email protected]

Key Financials

List: Aktietorget Market Cap: 2,486 MSEK Industry: Betting/Entertainment CEO: Fredrik Burvall Chairman: Rolf Akerlind

9.0 points 9.0 points 7.0 points 5.0 points 6.5 points

Share information

Share price (SEK) 149.0

Number of shares (m) 16.7

Market Cap (MSEK) 2,486

Net debt (MSEK) 409

Free float (%)

30 %

Daily turnover (’000) 15

Analysts:

Kristoffer Lindstrom [email protected]

ComeOn not yet fully discounted Cherry’s Q2 report was in line with our estimates with only

minor deviations. The market investment within Cherry

iGaming was higher than anticipated which also affected

the profitability. However, we take this margin dip with

ease as the marketing campaigns will boost growth in

coming quarters. Yggdrasil continues their impressive

performance and beat our forecast on all counts.

Cherry disclosed financials for ComeOn (not

consolidated in the Group numbers or forecast)

during H1. ComeOn performed well and in line with our

estimates. We argue that the market still underappreciates

the growth journey that lies ahead for Yggdrasil and that

the value of ComeOn is yet to be fully discounted in the

share price.

We raise our estimates in Base-case, which generates a new

Estimated Fair Value per share of 230 (215) SEK. We find

downside risks as relatively limited as the stock trades only

15% above our Bear-case valuation of 130 SEK per share.

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OMXS 30 Cherry

Management Ownership Profit outlook Profitability Financial strength

Summary

Cherry (cherb.st)

Redeye Rating (0 – 10 points)

2014 2015 2016E 2017E 2018E

*Revenue, MSEK 340 527 782 953 1,114

Growth 28% 55% 48% 22% 17%

*EBITDA -18 36 89 160 210 EBITDA margin -5% 7% 11% 17% 19%

*EBIT -33 13 58 126 171 EBIT margin -10% 3% 7% 13% 15%

*Pre-tax earnings -37 7 46 95 145 Net earnings -39 2 33 76 117 Net margin -12% 0% 4% 8% 10%

2014 2015 2016E 2017E 2018E

P/E adj. -13.4 304.7 74.8 32.6 21.3 EV/S 1.4 1.3 2.6 1.8 1.2 EV/EBITDA -26.4 18.9 22.5 10.5 6.5

2014 2015 2016E 2017E 2018E

Dividend/Share 0.00 0.00 0.00 0.00 3.49 EPS adj. -2.92 0.12 1.99 4.57 6.99

*ComeOn is not consolidated

in our forecast and valued

separately. See page 7.

Cherry

Company analysis 2

Redeye Rating: Background and definitions

The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation.

Company Qualities

The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or

operating risk) – its chances of surviving and its potential for achieving long-term stable profit growth.

We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management, 2 –

Ownership, 3 – Profit Outlook, 4 – Profitability and 5 – Financial Strength.

Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted

differently according to how important they are deemed to be. Each key factor is allocated a number of points

based on its rating. The assessment of each valuation key is based on the total number of points for these

individual factors. The rating scale ranges from 0 to +10 points.

The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of

the bars therefore reflects the rating distribution between the different valuation keys.

Management

Our Management rating represents an assessment of the ability of the board of directors and management to

manage the company in the best interests of the shareholders. A good board and management can make a

mediocre business concept profitable, while a poor board and management can even lead a strong company into

crisis. The factors used to assess a company’s management are: 1 – Execution, 2 – Capital allocation, 3 –

Communication, 4 – Experience, 5 – Leadership and 6 – Integrity.

Ownership

Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner

commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with

a dispersed ownership structure without a clear controlling shareholder have historically performed worse than

the market index over time. The factors used to assess Ownership are: 1 – Ownership structure, 2 – Owner

commitment, 3 – Institutional ownership, 4 – Abuse of power, 5 – Reputation, and 6 – Financial sustainability.

Profit Outlook

Our Profit Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit

growth. Over the long-term, the share price roughly mirrors the company’s earnings trend. A company that does

not grow may be a good short-term investment, but is usually unwise in the long term. The factors used to

assess Profit Outlook are: 1 – Business model, 2 – Sale potential, 3 – Market growth, 4 – Market position, and 5 –

Competitiveness.

Profitability

Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to

generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company

has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on

total assets (ROA), 2 – Return on equity (ROE), 3 – Net profit margin, 4 – Free cash flow, and 5 – Operating

profit margin or EBIT.

Financial Strength

Our Financial Strength rating represents an assessment of a company’s ability to pay in the short and long term.

The core of a company’s financial strength is its balance sheet and cash flow. Even the greatest potential is of no

benefit unless the balance sheet can cope with funding growth. The assessment of a company’s financial strength

is based on a number of key ratios and criteria: 1 – Times-interest-coverage ratio, 2 – Debt-to-equity ratio, 3 –

Quick ratio, 4 – Current ratio, 5 – Sales turnover, 6 – Capital needs, 7 – Cyclicality, and 8 – Forthcoming binary

events.

Cherry

Company analysis 3

Market investments for growth

Compared to our estimates the revenue level was almost spot-on, but the

EBIT a bit lower. The deviation was almost entirely explained by higher

than anticipated market investments within Cherry iGaming following the

newly launched sites and the sportsbook. Yggdrasil continues to impress

and showed a significant positive deviance compared to our forecast.

Restaurant casino was a bit weaker than anticipated, mostly due to

recruitments of croupiers. ComeOn is not yet consolidated at a group level,

but the company’s performance during Q2’16 was well in line with our full

year estimates. We have divided this update into sections where we discuss

the segments in more detail. Cherry iGaming, ComeOn, Yggdrasil,

Restaurant casino.

The bond is now issued In July Cherry announced that they issued a four-year unsecured bond of

EUR 50 million with maturity 11 July 2020. The proceeds were used for the

acquisition of 49% of the shares in ComeOn. The bond loan has a floating

interest rate of Euribor 3 months plus 9% with a quarterly interest

payment. The fact that the bond was issued close to Brexit voting results

shows that the capital market have confidence in Cherry and ComeOn and

the combined business. The bond will be listed on Nasdaq Stockholm. The

investors of the bond were mainly from the Nordics and in total about 7o

investors participated in the issue. The current interest cost for Cherry

amounts to roughly EUR 1.2m per quarter, starting in Q3 but with a full

effect from Q4 and onwards.

Estimate vs outcomeMSEK Q2'15 Q2'16A Q2'16E Dif.

Revenues 107 192 191 1%

EBIT* -5 6 16 -61%

Revenue growth rate 40% 80% 79%

EBIT-margin n.m. 3% 8%

Segments

Revenues

Restaurant Casino 40 36 42 -14%

Growth 13% -9% 6%

Cherry iGaming 66 139 134 4%

Growth 61% 113% 105%

Yggdrasil Gaming* 2 17 15 15%

Growth 100% 944% 808%

EBIT

Restaurant Casino 4 2 4 -36%

margin 10% 6% 9%

Cherry iGaming -4 4 11 -68%

margin n.m. 3% 9%

Yggdrasil Gaming* -3 7 3 146%

margin n.m. 40% 19%

*Yggdrasil figures: Exclusion of Internal Revenues

Source: Redeye Research, Cherry

The deviation was almost

entirely explained by

higher than anticipated

market investments

within Cherry iGaming

The bond loan has a

floating interest rate of

Euribor 3 months plus 9%

with a quarterly interest

payment

Cherry

Company analysis 4

Cherry iGaming

Quarterly discussions

Cherry iGaming (the online casino) reported a high revenue uptake both

driven by organic improvements and earlier acquisition on Almor. On the

top-line Online Gaming beat our estimates but they fell a bit short on the

profitability level. However, this deviation was almost entirely due to

increased marketing investments. Overall the reported numbers for Cherry

iGaming was well in line with our estimates.

The affiliate network is expanding, new acquisition.

Cherry’s subsidiary Game Lounge has signed an agreement to acquire the

affiliate company Interclick Limited, active in the German and UK markets.

The purchase price amounts to 1.5 million dollars; the purchase will be

financed entirely by Game Lounges operations, and the acquisition is

expected to increase sales by approximately EUR 1.3 million and EBITDA of

more than EUR 1 million per year.

The acquisition multiples it cheap to say the least as Game Lounges is

paying about 1.3x expected EBITDA. Cherry continues to improve their

affiliate offering, and we would not be surprised if the group creates a

separate segment focused only on affiliates in the near-term future

Estimate vs outcome, Cherry iGamingMSEK Q2'15 Q2'16A Q2'16E Dif.

Net Sale 66 139 134 4%

Other OPEX -43 -82 -79

EBITDAM 23 57 55 4%

Marketing expenses -25 -49 -39

EBITDA -2 9 16 -47%

D&A -2 -5 -5EBIT -4 4 11 -68%

Net sales growth 113% 105%

EBITDAM margin 34% 41% 41%

EBITDA margin n.m. 6% 12%

EBIT margin n.m. 3% 9%

Source: Redeye Research, Cherry

Interclick Limited acquisition multiples

EV (EUR) Net sales EBITDA EV/S EV/EBITDA

1.3 1.3 1.0 1.0x 1.3x

Source: Redeye Research

A cheap acquisition

Cherry

Company analysis 5

Heavy investments for growth

The number of registered customers rose significantly during the quarter,

both compared to Q2’15 but also this year’s Q1. The high marketing and

Cherry’s continue focus on customer loyalty programs, and enhanced way

of working with VIP/CRM and BI has started to pay off. The active

customers in relation to registered came down a bit from the levels in Q1.

However, this was expected due to the considerable rise in number of new

users. The continued strong trend in customer intake makes us confident in

sustained growth rates.

During the quarter marketing activities amounted to SEK 47m, accounting

for 34% (we had 29% in our estimate) of online gaming revenues. The

investment was focused on CherryCasino.com, SpilleAutomater.com,

Sunmarker.com and SunnyPlayer.com which resulted in a significant

increase in the number of customers and the deposited amount, mentioned

above. The increase in marketing was something we had anticipated.

However, we thought the biggest uptake would take place in Q3 and not Q2.

Going onwards, we expect that we will see a continued high investment rate

but lower than during Q2.

Quarter, Cherry Online Gaming: Registered customers & Active/Registered

Source: Cherry & Redeye Research

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Quarter, Cherry Online Gaming: Net Sales (mSEK) & Marketing exp. % Sales


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The number of registered

customers rose

significantly during the

quarter

The investment was

focused on

CherryCasino.com,

SpilleAutomater.com,

Sunmarker.com and

SunnyPlayer.com

Cherry

Company analysis 6

Next quarter

We expect to see EBIT margins in the region of 8% during the coming

quarters, as the marketing investments continue at relatively high levels

and that the ComeOn acquisition still drives some additional costs. For

Q3’16 we anticipate net sales of SEK 140m, growth of 30%, with and EBIT-

margin of 8%.

Long-term estimates for Cherry iGaming

We believe Cherry will be able to grow above the market in the coming

years, driven by already conducted acquisitions, the launch of the

sportsbook, mobile gambling growth and entry into new market regions

such as the UK. By around 2020 we believe Cherry will reach a more

mature state and grow closer to market rates. One key factor affecting the

long-term profitability is the upcoming re-regulations of the market. The

regulations will lead to higher taxation of Gross game win and subsequently

increase the reported Cost of sales (COS). We expect that some of the

increase in COS will be offset by improved marketing efficiency, due to

better marketing capabilities in a regulated market. But on an aggregated

level, throughout all of the industry, we expected that the sustainable

margin levels will be lower than currently reported by most gaming

operators. We find our assumption of an EBIT-margin in the region of 15%

both as conservative and sound. Our forecast is based on organic growth

despite Cherry’s pronounced ambition of further acquisations.

One key factor affecting

the long-term profitability

is the upcoming re-

regulations of the market

Detailed estimate, long term

mSEK 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Net sales 183 350 549 624 705 783 853 921 986 1045 1108

Total OPEX -208 -338 -510 -567 -628 -689 -742 -792 -838 -888 -942

EBIT -25 12 39 57 78 94 111 129 148 157 166

Net sales growth 44% 91% 57% 14% 13% 11% 9% 8% 7% 6% 6%

EBIT margin -14% 3% 7% 9% 11% 12% 13% 14% 15% 15% 15%


Detailed estimate, quarter

mSEK Q1'15 Q2'15 Q3'15 Q4'15 2015 Q1'16 Q2'16E Q3'16E Q4'16E 2016E

Net sales 58 66 108 119 350 127 139 140 142 549

Other OPEX -38 -43 -63 -68 -211 -77 -82 -82 -83 -325

EBITDAM 21 23 44 51 139 50 57 57 59 224Marketing exp. -27 -25 -30 -35 -117 -34 -49 -42 -41 -166

EBITDA -6 -2 15 15 22 17 9 15 18 58

D&A -2 -2 -3 -3 -10 -5 -5 -5 -5 -20

EBIT -8 -4 11 12 12 12 4 10 13 39

Net sales growth 49% 61% 131% 109% 91% 118% 113% 30% 20% 57%

EBITDAM margin 36% 34% 41% 43% 40% 40% 41% 41% 42% 41%

EBITDA margin -10% -4% 13% 13% 6% 13% 6% 11% 13% 11%

EBIT margin -13% -6% 10% 10% 3% 9% 3% 8% 9% 7%


Cherry

Company analysis 7

ComeOn

Now the registered owner

On July the 20nd Cherry announced that they are the registered owner of

49% of the shares in ComeOn. In conjunction with the press release and the

Q2 report, Cherry also disclosed financial information regarding the

performance during H1 and Q2 for ComeOn.

During Q2 ComeOn reported preliminary net sales of SEK 225m with an

EBIT of SEK 53m, corresponding to a margin of 24%. The result is adjusted

for some non-recurring charges. An EUR/SEK rate of 9.3 was used when

calculating the financials despite the current rate of about 9.5, so the actual

performance was even higher. Deposits, active customers, and new

customers all grew in the region of 30%, indicating a good response from

currents marketing campaigns and that the growth path will continue.

If ComeOn had been fully consolidated during Q2, the total sales would

have amounted to SEK 403m with an EBITDA margin of 17%. To acquire

the remaining 51% of ComeOn Cherry will have to pay approximately EUR

130m, so the increase comes at a cost. But according to us the price of 10x

EBIT that Cherry is paying for ComeOn’s earnings is a great one.

ComeOn financials Q2*

mSEK Q2'15 Q2'16

Sales 172 225

Total OPEX -142 -172

EBITDA 30 53

D&A 0 0

EBIT 30 53

Net sales growth 31%

EBITmargin 17% 24%

EBITDA margin 17% 24%


*at EUR 9.2992

ComeOn financials Q2*

mSEK Q2'15 Q2'16

Sales 172 225

Total OPEX -142 -172

EBITDA 30 53

D&A 0 0

EBIT 30 53

Net sales growth 31%

EBITmargin 17% 24%

EBITDA margin 17% 24%


*at EUR 9.3

Deposits, active

customers, and new

customers all grew in the

region of 30%

If ComeOn had been fully

consolidated during Q2,

the total sales would have

amounted to SEK 403m

with an EBITDA margin

of 17%

Cherry

Company analysis 8

Long-term estimates for ComeOn

We estimate that ComeOn will report net sales of EUR 110m with an EBIT-

margin of 19% for 2016. Given the strong results during H1 we feel

confident in our estimates, and they might be somewhat conservative.

As discussed earlier the final purchase price will amount to 10x the full year

EBIT result during 2016.

In our view, the most significant growth opportunity for ComeOn lies in

entry into new markets, profitable re-regulated ones such as the UK, Italy

and other emerging markets in Europe, as ComeOn has a relatively large

share of revenues from Scandinavia. However, we believe the long-term

margins will decline as the presence in regulated markets today is low and

will increase, leading to a higher taxation rate of Gross game win a few years

out. We have used the same margin assumption for ComeOn as for Cherry’s

Online Gaming segment of long-term margin in the region of 15%.

Valuation of ComeOn

We have assumed a relatively high CAGR 2015-2024, primarily driven by

entry into new re-regulated markets. We have anticipated an average EBIT

margin of 16% during the period. The estimated margin is lower than the

current levels, led by higher taxation rates of online gaming in the future. In

our terminal year, we have assumed a relatively low growth rate of 4% for

FCF with an EBIT margin of 15%, assumptions that must be seen as

conservative. Our DCF implies a valuation for ComeOn of EUR 373 with

Cherry’s 49% stake worth EUR 183m, corresponding to SEK 1 726m. Our

valuation can be compared with the maximum purchase price of EUR 280

million on a debt free / basis. Thus, we find that the acquisition conducted

at a low price, and create substantial value for shareholders of Cherry.

ComeOn valuationAssumptions 2015-24 DCF-value

CAGR Sales 12% WACC 10.0%

EBIT margin (avg) 16% Net presenst value FCF 154

Net present value of Terminal 218

Terminal EV (EUR) 373

Terminal growth FCF 4.0% Cherry's share 49%

Terminal EBIT margin 15% DCF-value (EUR) 183

Exit EV/EBIT multiple 16x in MSEK 1 726


We have used the same

margin assumption for

ComeOn as for Cherry’s

Online Gaming segment

Our DCF implies a

valuation for ComeOn of

EUR 373m with Cherry’s

49% stake worth EUR

183m


mEUR 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Net sales 50 80 110 132 152 170 185 200 214 227 241

Total OPEX -42 -67 -89 -111 -129 -145 -158 -170 -182 -193 -205

EBIT 8 13 21 21 23 26 28 30 32 34 36

Net sales growth 60% 38% 20% 15% 12% 9% 8% 7% 6% 6%

EBIT margin 15% 16% 19% 16% 15% 15% 15% 15% 15% 15% 15%


Cherry

Company analysis 9

Yggdrasil

The growth story of Yggdrasil seems to know no boundaries, and yet again

the segment reported both a revenue level and result that exceeded our high

expectations. The largest positive deviation occurred on the profit level as

we had anticipated higher OPEX, in relation to sales, because of

organizational investments. The margin was slightly down compared to Q1

but still at a high level. We must highlight that the current earnings power

of Yggdrasil is considerably greater than current margin levels imply, as the

company continues to invest heavily for future growth.

Yet another reward

In June Yggdrasil was awarded the title ”Slot Provider of the Year” at EGR

B2B Awards in London. Some of the other nominees were IGT, Playtech,

and Microgaming. The variety, quality and consistent reliability of

Yggdrasil's product suite were the judge’s motivations behind the award.

The award is, in our view, yet another confirmation of Yggdrasil high-

quality offering. The superiority of Yggdrasil’s gaming portfolio is the main

reasons why they consistently gain maker share and are awarded new

contracts with operators.

Making casino winnings social, let’s BRAG

Yggdrasil continues to show their ingenuity and just recently launched a

new social function called BRAG for their slots, where players can share

their winnings with friends over social media. The new feature is an

Estimate vs outcome, YggdrasilMSEK Q2'15 Q2'16A Q2'16E Dif.

Sales 2 20 18 13%

to Cherry -1 -3 -3

Net sale 2 17 15 15%

OPEX -3 -10 -9

EBITDA -1 10 5 83%

D&A -2 -3 -3EBIT -3 7 3 146%

Sales growth 805% 700%

Net sales growth 944% 808%

EBITDA margin n.m. 49% 31%

EBIT margin n.m. 34% 16%

The current earnings

power is considerably

greater than current

margin levels imply, as

the company continues to

invest heavily for future

growth

The superiority of

Yggdrasil’s gaming

portfolio is the main

reasons why they

consistently gain maker

share

Cherry

Company analysis 10

industry innovation, and no other slot supplier has developed a function

like this.

Why is this interesting? Because essentially this is a low-cost marketing tool

for of the operator. The value is directly created by the players and the

promotion also. As such this type of advertising activity clearly benefits

from networking effects. Yggdrasil states that early testing has shown the

tool to be hugely popular with players, increasing engagement and

improving the overall experience.

New game titles

During the quarter Yggdrasil launch three new game titles; Wicked Circus,

Money King, and Bicicleta. After the quarter ended two more was

presented; Legend of the white snake lady and Big Blox.

By the end of the quarter, the games portfolio consisted of 23 (25 with the

after quarter launched) video slots. We had anticipated that the company

would launch two new titles, but there seems to be no slowdown of the

creativity of Yggdrasil when it comes to producing slots. Two new operators

were integrated during the quarter and after the period had ended both

Interwetten and bwin.party was signed. A large milestone for Yggdrasil was

when the biggest online gambling operator in the world, bet365, went

online on the 1st of August.

Yggdrasil's game launches

Launches during the quarter:

Launches after the quarter:

Source: Yggdrasil, Redeye Research

BRAG is essentially a low-

cost marketing tool for of

the operator

By the end of the quarter,

the games portfolio

consisted of 23

Cherry

Company analysis 11

Currently, Yggdrasil’s portfolio now consists of 23 slots and a number of

lotto and jackpots. Yggdrasil has a goal of 10 game launches per year; we

anticipate that the company will increase their developer staff to accelerate

the launch game rate further. By the end of 2017, we expect that the

portfolio will amount to roughly 41 video slots with about 33 operators

integrated.

Slot quality is visible in the numbers

Compared to Q2’15 the revenue per operator and game rose by almost

astonishing 352%. We believe this proves our hypothesis that the demand

for Yggdrasil’s slots is increasing, and the promotional rate continues to be

enhanced on the operator’s sites. To be conservative we model a modest rise

in the coming quarters, something we must like will have to revise in the

upcoming analysis updates. The combination of more games in the

portfolio, an increase in the number of integrated operators and an

enhanced turnover in Yggdrasil’s slots will drive the revenue to new heights

at an increasingly rapid rate.

Yggdrasil Gaming: Integrated operators (total) & Launched games (total)


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Yggdrasil Gaming: Net sales (mSEK) & Revenue per operator and game (kSEK)


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352% rise!

By the end of 2017, we

expect that the portfolio

will amount to roughly 41

video slots with about 33

operators integrated

Compared to Q2’15 the

revenue per operator and

game rose by almost

astonishing 352%

Cherry

Company analysis 12

We had anticipated a larger increase in OPEX because of the substantial

growth during the quarter. However, Yggdrasil showed their strengths once

again, and the EBIT margin held up nicely despite the large uptake in

revenues. We believe the company will continue to invest in personal for

sales, developers, marketing and more. We anticipate that OPEX, as % of

sales, will vary between 50-55% on a quarterly basis during the next two-

year period.

Next quarter

We expect the sales levels to continue to rise during Q3’16 both on a

quarterly and a yearly basis. For the next quarter, we anticipate a net sales

level of SEK 21m with an EBIT of SEK 8m.

Yggdrasil Gaming: Net sales (mSEK) & OPEX, % of sales


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We believe Yggdrasil will

need to invest, in staff, to

fuel their growth


mSEK Q1'15 Q2'15 Q3'15 Q4'15 2015 Q1'16 Q2'16 Q3'16E Q4'16E 2016E

Sales 2 2 5 10 20 14 20 25 30 89

to Cherry -1 -1 -1 -2 -5 -3 -3 -4 -4 -14

Net sales 2 2 4 8 16 11 17 21 26 75OPEX -3 -3 -3 -6 -15 -6 -10 -13 -16 -46

EBITDA 0 -1 2 5 5 8 10 12 14 43

D&A -2 -2 -2 -3 -8 -2 -3 -3 -3 -12

EBIT -2 -3 0 2 -3 6 7 8 11 31

Net sales growth 260% 100% 310% 811% 391% 522% 944% 415% 221% 573%

*EBITDA margin -17% -55% 36% 47% 26% 56% 49% 47% 46% 49%

*EBIT margin -83% -127% 0% 20% -13% 39% 34% 34% 36% 35%

Integrated operators 14 17 18 20 20 22 24 27

Game portfolio 11 13 15 17 20 23 26 29

Rev Game & Oper. (kSEK) 12 7 15 24 28 33 33 34


*Based on total sales

Cherry

Company analysis 13

Long-term estimates for Yggdrasil, substantial growth to come

We expect the growth journey of Yggdrasil to continue for many years to

come with a significant uptake in revenues during 2016. We believe that by

2020 Yggdrasil will have matured, and the growth rate will start to decrease

and be closer to the market. We estimate long-term EBIT-margins in the

region of 32%. We must emphasize on the difficulties in assessing

sustainable margins in a maturity state for a relatively young venture such

as Yggdrasil. Our estimate is based on the current margin levels of larger

gaming suppliers such as NetEnt, PlayTech, and Evolution Gaming. These

companies currently have EBIT-margin in the region of 30-40%, as such we

believe long term margin of 32% is a relatively conservative assumption to

make.

We expect the growth

journey of Yggdrasil to

continue for many years

to come

Yggdrasil detailed estimate, long-term

mSEK 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Sales 4 20 89 181 257 335 399 458 524 585 654

Total OPEX -13 -23 -58 -113 -164 -218 -268 -307 -356 -398 -444

EBIT -9 -3 31 69 93 117 132 151 168 187 209

Net sales growth -97% 359% 342% 103% 42% 30% 19% 15% 15% 12% 12%

EBIT margin -195% -13% 35% 38% 36% 35% 33% 33% 32% 32% 32%


Cherry

Company analysis 14

Restaurant casino

The Restaurant casino came in a bit below our anticipated levels. Calendar

effects explain the decrease in revenue and significant recruitments of new

croupiers also had an adverse impact on income and earnings during an

initial learning period but are expected to yield returns going forward. The

increase in employer contributions reduces the margin to some extent.

During the period the market share increased to 68%, which shows Cherry’s

dominate position in the market. We believe the increased employer

contribution will lead to attractive acquisition opportunities for Cherry as

some smaller players are not equipped to handle the rising cost the change

generates.

Estimate vs outcome, Restaurant casinoMSEK Q2'15 Q2'16A Q2'16E Dif.

Net Sales 40 36 42 -14%

OPEX -34 -33 -37

EBITDA 5 3 5 -37%

D&A -1 -1 -1

EBIT 4 2 4 -36%

Net sales growth -9% 6%

EBITDA margin 13% 9% 12%

EBIT margin 10% 6% 9%

Restaurant casino: Market share & Number of tables


335

340

345

350

355

360

365

370

375

380

56%

58%

60%

62%

64%

66%

68%

70%

2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2

Nu

mb

er

of

tab

les

Mar

ket

shar

e

Market share Number of tables

From 61% to 68%

Calendar effects explain

the decrease in revenue

and significant

recruitments of new

croupiers

During the period the

market share increased to

68%, which shows

Cherry’s dominate

position in the market

Cherry

Company analysis 15

The margins during Q2’16 was three percentage points below our estimate.

We thought the increased employer contribution would affect the

profitability negatively, but we did not account the fact that the while

Cherry is gaining market share this would also lead to need to increase their

staff count, and dampen the short-term margin levels. We believe the

margin during Q2 was somewhat of a low point and expect to see levels

between 7-8% going onwards.

Long-term estimate for the Restaurant casino

Long-term we find an EBIT-margin in the region of 8% and top-line growth

of around 4% as sustainable. The undergoing re-regulation of the Swedish

market also concerns an adjustment for the maximum allowed bets on

gaming venues such as Cherry’s. If the max bet is increased, we would

expect to see a significant uptake in revenues from Cherry’s restaurant

casino with followed profitability, however, to be conservative this is

something we do not assume in our forecasts.

Restaurant casino: Net sales (mSEK) & EBIT margin


0%

2%

4%

6%

8%

10%

12%

0

5

10

15

20

25

30

35

40

45

50

EBIT

mar

gin

Ne

t sa

les

(mSE

K)

Net sales (mSEK) EBIT margin

We believe the margin

during Q2 was somewhat

of a low point and expect

to see levels between 7-8%

going onwards

If the max bet is

increased, we would

expect to see a significant

uptake in revenues from

Cherry’s restaurant

casino


mSEK 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Revenues 148 161 158 166 172 179 186 194 201 209 216

Total OPEX -135 -146 -146 -153 -158 -165 -171 -178 -185 -193 -198

EBIT 13 16 12 12 14 14 15 15 16 17 17

Net sales growth 16% 9% -2% 5% 4% 4% 4% 4% 4% 4% 3%

EBIT margin 9% 10% 8% 7% 8% 8% 8% 8% 8% 8% 8%


Cherry

Company analysis 16

The Cherry group

For Q3, we expect net sales of SEK 202m with an EBIT margin of 6%. We

believe non-recurring items for the acquisition of ComeOn will have

negative impact on earnings of about SEK 5m, adjusted for this charges our

estimated EBIT margin is 9%. Discussion about estimates can be seen in

each segments section; Cherry iGaming, Yggdrasil Gaming, Restaurant

casino

Long-term we expect to see a significant increase in revenues in the coming

years, led by substantial growth of Yggdrasil, entry into new markets,

mobile gambling growth and the product broadening within Online

Gaming. We expect to see a margin expansion as the revenue share for the

highly profitable Yggdrasil will increase substantially.

Cherry Group: Net sales (mSEK) & EBIT margin


-15%

-10%

-5%

0%

5%

10%

15%

20%

0

50

100

150

200

250

300

EBIT

mar

gin

Ne

t sa

les

(mSE

K)

Net sales (mSEK) EBIT margin

Long-term we expect to

see a significant increase

in revenues in the coming

years, led by substantial

growth of Yggdrasil


mSEK Q1'15 Q2'15 Q3'15 Q4'15 2015 Q1'16 Q2'16 Q3'16E Q4'16E 2016E

Net sales 95 107 154 171 527 177 192 202 211 782

OPEX -103 -112 -143 -155 -513 -160 -186 -189 -190 -724

EBIT -8 -5 11 16 14 18 6 13 21 58

*Exo-items 0 -4 -6 -2 12

Adjusted EBIT -8 -5 11 16 14 18 10 19 23 70

Net sales growth 31% 40% 81% 71% 256% 86% 80% 31% 23% 48%

EBIT margin -8% -5% 7% 10% 3% 10% 3% 6% 10% 7%

Adjusted EBIT margin -8% -5% 7% 10% 3% 10% 5% 9% 11% 9%


*Acquisition and listning costs


mSEK 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Revenues 334 527 782 953 1114 1274 1414 1546 1683 1809 1945

Total OPEX -367 -513 -724 -826 -942 -1059 -1167 -1262 -1363 -1461 -1565

EBIT -33 14 58 126 171 214 246 284 319 348 379

Net sales growth 162% 58% 48% 22% 17% 14% 11% 9% 9% 8% 7%

EBIT margin -10% 3% 7% 13% 15% 17% 17% 18% 19% 19% 19%


Cherry

Company analysis 17

If ComeOn would had been consolidated

As we believe the market is yet to appreciate the full effect from the

ComeOn acquisition we want to highlight how our financial forecast if we

would consolidate ComeOn, however, if the acquisition would be fully

accounted for the capital structure of Cherry would also look different.

Our estimate for a fully consolidated Cherry would be sales of around SEK 1

821m with an EBIT of SEK 256m for 2016. The current market cap of

Cherry is around SEK 2500m, and they will have to pay about EUR 130m as

the additional consideration for the remaining shares of ComeOn. As we do

not know what the exact deal terms will be for the remaining share we won’t

make an EV adjustment today. However, when comparing to industry

peers, it is rather evident that the underlying fundamental value of ComeOn

is not yet entirely discounted at current market levels. The “new” Cherry

will be the third largest player in the Nordic and highly profitable.

Estimate changes

In the table below we summarize our estimate changes following the report.

The most significant adjustments are within Yggdrasil but also to some

degree within Cherry iGaming.

Peer comparison

Company EV (MSEK) Sales EBIT EBIT-m

Unibet 17 984 5 797 988 17%

Betsson 12 136 4 061 882 22%

888 8 546 4 145 572 14%

Leovegas 3 120 1 287 -25 -2%

Mr Green 1 015 924 41 4%

Cherry & ComeOn 1 821 256 14%

Source: Bloomberg & Redeye Research

2016

Estimate changes

MSEK 2016E 2017E 2018E

Revenues

Old 775 935 1 087

New 782 953 1 114

% change 1% 2% 2%

EBIT

Old 48 87 135

margin 6% 9% 12%

New 58 126 171

margin 7% 13% 15%

% change 21% 45% 27%

Source Redeye Research

The underlying

fundamental value of

ComeOn is not yet entirely

discounted at current

market levels

Detailed estimate, fully consolidated & pro forma*

mSEK 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Revenues 807 1283 1821 2200 2548 2880 3165 3437 3706 3954 4219

Total OPEX -767 -1145 -1565 -1874 -2162 -2425 -2656 -2870 -3083 -3285 -3498

EBIT 40 138 256 326 387 455 509 567 623 670 720

Net sales growth 59% 42% 21% 16% 13% 10% 9% 8% 7% 7%

EBIT margin 5% 11% 14% 15% 15% 16% 16% 17% 17% 17% 17%


*based on EUR/SEK 9.45

Cherry

Company analysis 18

Valuation

DCF Valuation

Our estimated CAGR amounts to roughly 14% between the years 2015-

2025. We believe that entry into new market regions, mobile growth, and

Yggdrasil will support the high growth rates. We estimate an increasing

margin due to rapid growth within the highly profitable Yggdrasil. The

margin expansion is somewhat offset by increased presence in re-regulated

markets within the Online Gaming segment. In the terminal year, we model

an FCF growth of 4% and an EBIT margin of 18%, which we find as a

conservative assumption to make. Our terminal valuation indicates an

“exit” multiple, based on EBIT, of 14x which is in-line with valuation levels

of more mature/larger gambling companies. As previously discussed,

ComeOn is valued separately at SEK 1 726. Cherry have substantial

minority holdings in Almor, Yggdrasil, and Moongate, which we value at

SEK 922m and are deducted from our DCF valuation. Due to our estimate

changes our Fair value estimate, in Base-case, is revised upwards to 230

(215) SEK per share.

Today’s share price levels indicate increasingly higher expectations on

Cherry’s future fundamental performance. However, as our valuation

implies, we see some potential and that the market still has yet to grasp the

growth journey that Yggdrasil will undergo and the full effect of the

ComeOn acquisition.

Cherry: Base-caseAssumptions 2015-25 DCF-value


EBIT margin (avg) 16% Net presenst value FCF 1 219

ROIC (avg) 32% Net present value of Terminal 2 132

Terminal EV 3 351

Terminal growth FCF 4.0% Net debt -439

Terminal EBIT margin 18% Value assos. Companies 1 726

Exit EV/EBIT multiple 14x Value minorities -801

DCF-value 3 837

Estimated Fair value 230

Todays share price 150.0

Potential/Risk 53%


Growth driven by expected

high mobile growth, product

broadening, entry into new

regions and Yggdrasil

Fair value estimate, in

Base-case, of 230 SEK per

share

Cherry

Company analysis 19

Relative valuation

The table below illustrates a comparison of comparable competitors.

We have divided our peer table into two groups: Operators and suppliers.

The valuation levels vary due to business characteristics, profitability and

growth prospects. Gaming suppliers commonly are valued at higher

multiples than Operators by the markets, as these companies most often are

highly profitable with sticky and growing revenue streams protected by

strong switching costs.

We believe a high valuation, based on multiples, is justified for Cherry

because of the substantial growth in earnings the coming years. Due to a

high uptake in Yggdrasil, the EBIT margin will expand from 9% during

2016 to 15% 2018. A premium for Cherry’s profound capital allocation skills

should also be justified according to us.

Gaming suppliers

commonly are valued at

higher multiples than

Operators

Peer valuation CherrySALES

CAGR

EBIT

CAGR

Company EV (MSEK) 2016E 2017E 2016E 2017E 2018E 15-18E 16-18E 2016E 2017E 2018E

Operators

Unibet 17 984 3.1x 2.7x 18x 15x 16x 18% 7% 17% 18% 15%

Betsson 12 136 3.0x 2.7x 14x 12x 12x 10% 5% 22% 22% 20%

888 8 546 2.1x 1.9x 15x 13x 12x 7% 11% 14% 15% 15%

Leovegas 3 120 2.4x 1.6x -126x 28x 12x 48% n.m. -2% 6% 10%

Mr Green 1 015 1.1x 0.9x 25x 9x 7x 16% 94% 4% 10% 13%

Median 8 546 2.4x 1.9x 15x 13x 12x 16% 9% 14% 15% 15%

Suppliers

PlayTech 33 148 4.7x 4.1x 15x 12x 11x 15% 14% 33% 33% 33%

NetEnt 16 929 11.6x 9.6x 32x 27x 23x 22% 19% 36% 36% 36%

Evolution Gaming 9 244 8.6x 6.7x 27x 21x 18x 32% 23% 32% 32% 31%

Kambi 3 419 5.8x 4.5x 25x 17x 15x 27% 29% 23% 26% 24%

Median 13 087 7.2x 5.6x 26x 19x 17x 25% 21% 32% 32% 32%

Cherry 2 033 2.6x 2.1x 35x 16x 12x 28% 72% 7% 13% 15%

Source: Bloomberg & Redeye Research

EV/Sales EV/EBIT EBIT margin

Cherry

Company analysis 20

Scenario valuation & Fair value range

Bull-case valuation

In our Bull Case, we assume that we Cherry succeeds beyond our

expectations with the launch of the new gaming services in a number of

markets, Yggdrasil enters a important partnerships and expand their

product portfolio to new segments, such as land-based gaming. The

company succeeds in optimizing the mobile operations which makes a

greater growth for the Online Gaming possible. In this scenario, we assume

that Yggdrasil will grow handsomly and representing an increasingly larger

part of the entity’s total turnover. In our Bull-case, we assume an average

operating margin of 19%, and a growth rate 17%. Our estimated Fair value

in Bear-case amounts to 314 SEK per share or 94% above the current share

price.

Bear-case valuation

In our Bear-case, we assume that Cherry experience weakness within

Online Gaming, due to increased competition and a reduced ability to retain

existing customers. Cherry experiences issues with the overseas

establishments and the company’s penetration into the mobile market fails,

which leads to investment losses as well as declining sales. In this scenario

Yggdrasil is still expected to contribute to the margin as well as the growth,

but to a lesser degree. In our Bear-case we assume an average operating

margin of 12%, and the growth rate is more or less in line with the market

growth of 8%. Our estimated Fair value in Bear-case amounts to 110 SEK

per share or 29% below the current share price.

Cherry: Bull-caseAssumptions 2015-25 DCF-value


EBIT margin (avg) 20% Net presenst value FCF 1 718


Terminal EV 4 914




DCF-value 5 512



Potential/Risk 120%


Cherry: Bear-caseAssumptions 2015-25 DCF-value


EBIT margin (avg) 13% Net presenst value FCF 745


Terminal EV 1 831




DCF-value 2 173



Potential/Risk -13%


Fair value estimate of 315

SEK per share in our Bull-

case

Fair value estimate of 110

SEK per share in our

Bear-case

Cherry

Company analysis 21

We estimate a Fair value range from 130-330 SEK per share with a Base-

case at 230 SEK per share. Our Fair value range and the current share price

indicate some potential from current share price levels.

Cherry: Fair value range

Last price 150.00.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0

0 50 100 150 200 250 300 350 400Bear-case: 130 Base-case: 230 Bull-case: 330

Cherry

Company analysis 22

Sensitivity analysis

It is always good to perform a sensitivity analysis on the assumptions that

form the basis of a DCF-model. A sensitivity analysis can also show which

approximate fundamental assumptions are factored into the current share

price.

The valuation is obviously sensitive to assumptions of the WACC and sales

growth. These assumptions are varied in this sensitivity analysis. We can

see that an increase in sales growth during the years 2015-25 has a

relatively large impact on the valuation, and an increase in the CAGR to 17%

during this period would indicate a Fair value of approximately SEK 262

per share. WACC impacts the valuation very sharply, and assuming a WACC

of 8% would indicate a Fair value estimate of SEK 390 per share.

The valuation is more sensitive to changes in sustained profitability.

Increasing our margin assumptions by 2 percentage point would indicate a

Fair value estimate of nearly SEK 248.

We find that a sustained margin of around 9% and a CAGR of around 9-11%

are factored into the current levels.

12% 13% 14% 15% 17%

230 -4% -2% 0% +2% +4%

8% 347 368 390 415 443

9% 261 277 294 313 334

10% 204 216 230 245 262

11% 163 173 184 197 210

12% 132 141 150 161 172


CAGR 2015-25

Fair value per share

WA

CC

10% 13% 16% 19% 22%

230 -6% -3% 0% +3% +6%

8% 347 370 390 409 427

9% 252 274 294 312 330

10% 189 211 230 248 265

11% 144 166 184 202 218

12% 111 132 150 167 183



EBIT margin avg (2015-2025)

WA

CC

8% 12% 16% 20% 24%

230 -8% -4% 0% +4% +8%

8% -10% 124 150 172 192 210

11% -5% 145 174 198 219 239

14% 0% 172 204 230 254 276

17% 5% 207 242 271 297 321

20% 10% 252 290 322 351 378


CA

GR

15

-25

EBIT margin avg (2015-2025)


Cherry

Company analysis 23

Summary Redeye Rating

The rating consists of five valuation keys, each constituting an overall

assessment of several factors that are rated on a scale of 0 to 2 points. The

maximum score for a valuation key is 10 points.

Rating changes in the report

No changes in rating.

Management 9.0p

Cherry’s• management possesses an extensive experience of the gaming industry, as a gaming operator as well as a game developer. CEO Fredrik Burvall has obtained comprehensive experience during his many years with Cherry, and the majority shareholder Morten Klein has deep knowledge and experience in developing successful gaming companies. We asses that the company is positioned well to further its growth and profitability in the future. The management is also well aware of the issues and opportunities that the company is facing.

Ownership 9.0p

Cherry obtains a high ownership rating due to the strong list of capable and likeminded owners who share a view of long term success, of which some also have a representation on the board. The company does however lack institutional owners which has a negative impact on the rating. A potential reason for the lack of interest from institutional owners is likely the low market cap as well as its listing on Aktietorget.

Profit outlook 7.0p

Cherry is experiencing differing circumstances in its two growth areas. The underlying growth is weak in the restaurant casino division, and as Cherry is already in a dominant position in the Swedish market, any future growth will not be significant. Cherry is however placed for strong growth opportunities in the online segment as it can now make offerings through its own platform. Competition is nonetheless significant and that is where the importance of a strong balance sheet in terms of cash comes into play, to be able to compete with the larger organizations. It should also be noted that the company Yggdrasil which is a project that is beginning to take form to become a large game developer, has had a positive impact on our rating.

Profitability 5.0p

The long term potential for increased profitability has improved regardless due to Yggdrasil and the ComeOn acquisition. Cherry is currently in a growth stage and is building upon its existing operations, which will put pressure on the profitability in the coming years.

Financial strength 6.5p

The company has a sound financial position. Cherry continues to sustain a substantial cash amount or equivalents on its balance sheet, even after the dividend payments and the earnout payments which can sustain the segments expected growth trajectory the coming years.

Cherry

Company analysis 24

Income statement 2014 2015 2016E 2017E 2018E

Net sales 340 527 782 953 1,114

Total operating costs -358 -491 -692 -793 -904 EBITDA -18 36 89 160 210

Depreciation 0 0 0 0 0

Amortization -15 -23 -31 -33 -39

Impairment charges 0 0 0 0 0 EBIT -33 13 58 126 171

Share in profits 0 0 0 10 10

Net financial items -5 -6 -12 -41 -36

Exchange rate dif. 0 0 0 0 0 Pre-tax profit -37 7 46 95 145

Tax -2 -1 -6 -7 -11

Net earnings -39 2 33 76 117

Balance 2014 2015 2016E 2017E 2018E

Assets

Current assets

Cash in banks 54 34 63 95 143 Receivables 43 87 141 181 223

Inventories 0 0 8 5 6

Other current assets 0 0 0 0 0

Current assets 98 120 212 281 371

Fixed assets Tangible assets 11 11 16 21 26

Associated comp. 0 0 473 473 473

Investments 1 0 0 0 0

Goodwill 0 0 0 0 0 Cap. exp. for dev. 0 0 0 0 0

O intangible rights 52 168 166 193 178

O non-current assets 0 0 0 0 0

Total fixed assets 64 179 655 687 677

Deferred tax assets 0 0 0 0 0

Total (assets) 162 300 867 968 1,048

Liabilities

Current liabilities Short-term debt 1 11 0 26 0

Accounts payable 63 129 195 238 278

O current liabilities 0 0 0 0 0

Current liabilities 65 140 195 264 278

Long-term debt 3 2 473 429 378 O long-term liabilities 0 0 0 0 0

Convertibles 0 0 0 0 0

Total Liabilities 67 141 668 693 656

Deferred tax liab 1 1 1 1 1

Provisions 0 0 0 0 0

Shareholders' equity 94 114 148 224 340 Minority interest (BS) 0 43 50 50 50

Minority & equity 94 157 198 274 390

Total liab & SE 162 300 867 968 1,048

Free cash flow 2014 2015 2016E 2017E 2018E Net sales 340 527 782 953 1,114

Total operating costs -358 -491 -692 -793 -904

Depreciations total -15 -23 -31 -33 -39

EBIT -33 13 58 126 171

Taxes on EBIT -2 -1 -7 -10 -14 NOPLAT -35 12 51 116 158

Depreciation 15 23 31 33 39

Gross cash flow -20 35 82 150 196

Change in WC 68 22 5 5 -2

Gross CAPEX -20 -137 -35 -65 -29

Free cash flow 29 -80 52 90 165

Capital structure 2014 2015 2016E 2017E 2018E

Equity ratio 58% 52% 23% 28% 37%

Debt/equity ratio 4% 11% 320% 203% 111% Net debt -50 -21 409 359 235

Capital employed 44 136 134 161 153

Capital turnover rate 2.1 1.8 0.9 1.0 1.1

Growth 2014 2015 2016E 2017E 2018E

Sales growth 28% 55% 48% 22% 17%

EPS growth (adj) 11% -104% 1,567% 129% 53%

Profitability 2014 2015 2016E 2017E 2018E ROE -29% 2% 25% 41% 41%

ROCE -23% 10% 14% 20% 24%

ROIC -32% 28% 37% 87% 98%

EBITDA margin -5% 7% 11% 17% 19%

EBIT margin -10% 3% 7% 13% 15% Net margin -12% 0% 4% 8% 10%

Data per share 2014 2015 2016E 2017E 2018E

EPS -2.92 0.12 1.99 4.57 6.99

EPS adj -2.92 0.12 1.99 4.57 6.99 Dividend 0.00 0.00 0.00 0.00 3.49

Net debt -3.73 -1.49 24.54 21.55 14.10

Total shares 13.45 14.00 16.68 16.68 16.68

Valuation 2014 2015 2016E 2017E 2018E

EV 475.8 679.5 2,010.9 1,673.9 1,359.2

P/E -13.4 304.7 74.8 32.6 21.3 P/E diluted -13.4 304.7 74.8 32.6 21.3

P/Sales 1.5 1.0 3.2 2.6 2.2

EV/Sales 1.4 1.3 2.6 1.8 1.2

EV/EBITDA -26.4 18.9 22.5 10.5 6.5 EV/EBIT -14.5 51.1 34.7 13.2 7.9

P/BV 5.6 4.5 16.9 11.1 7.3

Share information

Reuters code

List Aktietorget

Share price 149.0 Total shares, million 16.7

Market Cap, MSEK 2486.0

Management & board CEO Fredrik Burvall

CFO Alexander Pettersson

IR Fredrik Burvall

Chairman Rolf Akerlind

Financial information

Q3 report November 09, 2016

Analysts Redeye AB

Kristoffer Lindstrom Mäster Samuelsgatan 42, 10tr [email protected] 111 57 Stockholm

DCF valuation Cash flow, MSEK

WACC (%) 10.0 % NPV FCF (2016-2018) 262

NPV FCF (2019-2025) 973

NPV FCF (2026-) 2167 Non-operating assets 918

Interest-bearing debt -13

Fair value estimate MSEK 4309

Assumptions 2016-2022 (%)

Average sales growth 13.6 % Fair value e. per share, SEK 230 EBIT margin 15.4 % Share price, SEK 149.0

Share performance Growth/year 14/16e

1 month 6.4 % Net sales 51.7 %

3 month -8.0 % Operating profit adj �

12 month 199.8 % EPS, just � Since start of the year 11.2 % Equity 44.7 %

Shareholder structure % Capital Votes

Morten Klein 16.3 % 20.2 %

KGI AS 3.4 % 5.5 %

Familjen Hamberg 14.7 % 5.4 % Familjen Kling 14.3 % 4.7 %

F•rs•kringsaktiebolaget Avanza 2.5 % 4.1 %

Hotspur Holding AS 2.1 % 3.4 %

Cail 4.1 % 3.2 % Banque Carnegie Luxembourg SA 4.1 % 3.1 %

Familjen Lundstr•m med bolag 5.6 % 2.6 %

Familjen Lindwall 4.7 % 2.0 %

Cherry

Company analysis 25

Revenue & Growth (%) EBIT (adjusted) & Margin (%)

Earnings per share Equity & debt-equity ratio (%)

Sales division Geographical areas

Conflict of interests Company description

Kristoffer. Lindström owns shares in the company Cherry: Yes

Redeye performs/have performed services for the Company and receives/have received compensation from the Company in connection

with this.

Cherry is a gambling company founded in 1963 that offers casino and

lotteries online through a large portfolio of brands the brands

(www.CherryCasino.com, www.EuroLotto.com, www.EuroSlots.com, www.SpilleAutomater.com, www.NordicSlots.com,

www.NorgesSpill.com, www.SveaCasino.com, www.

SuomiAutomaatti.com, www.Sunmaker.com, www.SunnyPlayer.com

and www.KingPlayer.com). The company also offers affiliate business

through the subsidiary Game Lounge and the development of games (www.Yggdrasil.com). Cherry is also the owner of 49% of the shares in

ComeOn. Cherry has a dominate position and is the market leader in

casino restaurants and night clubs in Sweden. Cherry employs around

750 people and has more than 3800 shareholders. The company's B shares are listed on AktieTorget.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

200

400

600

800

1000

1200

2013 2014 2015 2016E 2017E 2018E

Net sales Net sales growth

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

-50

0

50

100

150

200

2013 2014 2015 2016E 2017E 2018E

EBIT adj EBIT margin

-4

-2

0

2

4

6

8

-4

-2

0

2

4

6

8

2013 2014 2015 2016E 2017E 2018E

EPS, unadjusted EPS, adjusted

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

350.0%

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2013 2014 2015 2016E 2017E 2018E

Equity ratio Debt-equity ratio

Cherry

Company analysis 26

DISCLAIMER

Important information

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place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction

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Limitation of liability

This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this

analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking

information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be

one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with

additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage

resulting from the use of this analysis.

Potential conflict of interest

Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity

and independence of its analysts. The following applies:

For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are

not allowed to trade in financial instruments of the company in question, effective from 30 days before its covered company comes with financial

reports, such as quarterly reports, year-end reports, or the like, to the date Redeye publishes its analysis plus two trading days after this date.

An analyst may not engage in corporate finance transactions without the express approval of management, and may not receive any

remuneration directly linked to such transactions.

Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an

underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports

should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance

of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.

Redeye’s research coverage

Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise

expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant

changes in market conditions or events related to the issuer/the financial instrument.

Recommendation structure

Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating

model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in

question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-

making.

Redeye Rating (2016-08-31)

Rating Management Ownership Profit outlook

Profitability Financial Strength

7,5p - 10,0p 42 42 19 7 17

3,5p - 7,0p 69 61 91 35 45

0,0p - 3,0p 6 14 7 75 55

Company N 117 117 117 117 117

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