Virtual Gaming Worlds mulls buyback ahead of yet another record profit announcement

WA billionaire Laurence Escalante’s online social gaming juggernaut Virtual Gaming Worlds is exploring a share buyback as it prepares to reveal another record profit that will swell its value to more than $5 billion ahead of a possible US listing.

The buyback would be in addition to a second dividend expected by the end of 2022, with the Perth-based company having already returned $132m from last year’s earnings haul at the beginning of September via a 20¢-a-share payout.

COVID-19 proved a boon for the fast-growing VGW, with lockdowns in its primary market of the US sending patronage of its online games soaring.

Having entered the pandemic with annualised revenues of about $400m, the company has flagged takings for the 2021-22 financial year of “well in excess” of $3b, including a previously reported $1.54b for its first half, and a 50 per cent-plus increase in annual operating profit to more than $550m.

The numbers, expected to be confirmed as early as next week. would reinforce VGW’s status as Australia’s most profitable unicorn.

They will also likely fuel increased valuations for the group, which was valued at $3.4b by a landmark share selldown by some investors through Canaccord Genuity a year ago.

That valuation was based on a modest revenue multiple of 1.6 times. Using the same multiple, the latest revenue surge would revalue VGW at well over $5b.

Flush with cash, the company is no rush to list its shares but management acknowledges a float will raise VGW’s profile, help incentivise staff and provide a more liquid sellers’ market for shareholders currently limited to an over-the-counter trading platform.

A listing has been under consideration for a couple of years, with VGW conceding last year that it is “far more likely” to list through an initial public offer in North America rather than on the Australian Securities Exchange.

Its success has enriched Mr Escalante, a former financial planner who founded the group in 2010. As its dominant shareholder with 66 per cent, he has pocketed more than $400m in franked dividends in the past two years alone.

VGW’s games, which include Chumbo Casino and and Global Poker, are marketed through Facebook and other social media platforms and use a sweepstakes model that allows the company to comply with laws banning online gambling in most US states.

Players use real money to buy virtual currency that comes with sweepstakes credits that can be redeemed for cash.

VGW told shareholders in its last investor update four weeks ago that it was considering another franked dividend in either late November of early December.

“In addition to this, the board is giving active consideration to a share buyback during the second half of this calendar year,” it said.

The company flagged that it may take on some rare debt, albeit “a moderate amount” to help fund the buyback.

VGW now has about 1100 staff across offices in Perth, Sydney, San Francisco, Malta, Manila and Toronto and is always looking for more. Its website is currently advertising for more than 40 roles across the globe, including heads of anti-money laundering compliance in Perth and Sydney.