Evolution Finally Did It: Evolution Gaming Announces Massive Buyback Program
After months of uncertainty, Evolution Gaming shocks investors with a historic $2 billion buyback program that could dramatically reshape shareholder returns over the next several years.
Evolution Gaming has finally announced a MASSIVE $2 billion buyback program. This comes amid delays, as investors speculated that the excess capital from the dividend suspension could be going toward an acquisition or that a buyout was pending. This buyback is massive and one of the largest buyback programs in Swedish corporate history. It is also nearly double what many investors were expecting, with most estimates around a $1 billion buyback program. Repurchases start immediately and can run through the 2027 Annual General Meeting.
The buyback covers roughly 16.5% of Evolution’s outstanding shares, based on its €12.1 billion market value. Considering that 45% of the company is currently held by founders and Kenneth Dart, that is huge. Evolution is funding this entirely with existing cash and future cash flows instead of taking on net debt.
Evolution currently trades at 12x earnings on a P/E basis. Right now, the business is being priced for little-to-no growth. So as long as the business remains flat, let alone grows modestly, these buybacks could be very impactful.
Evolution has been dealing with a plethora of issues ranging from game piracy to ring-fencing. These issues are still prevalent, but they appear to be less significant now and could soon be in the rearview mirror.
The Impact of These Buybacks
A share buyback permanently reduces the total number of shares in the stock market. Because the company’s future profits are split among fewer remaining shares, each individual share automatically receives a larger portion of the dividend pool. This means shareholders can receive a higher cash payout per share in the future without the company needing to spend any extra money.
This only works as long as the underlying business remains solid and continues to grow.
Also, when removing a large number of shares from the market, it immediately boosts EPS because the company’s total profits are now divided among fewer remaining shares. This sudden boost in EPS can make the stock look much cheaper and more attractive to investors, potentially driving up demand.
Overall, reducing the current share count could be extremely valuable to current shareholders, especially if the business continues to hold up.
One of the biggest things I have shared is that a buyback program would indicate not only confidence from management that the underlying business will be fine, but also competency. Very often, you see management teams hold onto a dividend and be stingy because cutting it could hurt their reputation as a dividend king, aristocrat, payer, etc. In reality, buybacks could provide a lot more value to shareholders and increase future dividend payouts.
Evolution is now trading at a 7-month high, and the stock reacted positively to the announcement. For more coverage on Evolution Gaming, please consider subscribing and checking out my other write-ups on Evolution AB.
Disclosure: I am long shares of Evolution Gaming stock. This article reflects my personal opinions only and is not financial advice. I am not receiving compensation from the company mentioned.