Raper Capital's Jeremy Raper expounds on his letter to Bragg Gaming $BRAG

Episode Summary

Executive Summary: In this episode, Andrew Walker and Jeremy Rayber discuss two investment situations: Bragg Gaming and the Spirit-JetBlue merger trial. For Bragg, Jeremy argues the company should sell itself due to structural risks and a low valuation relative to private market multiples. For Spirit-JetBlue, they analyze the government's weak antitrust case, noting the judge's skepticism and the recent Alaska-Hawaiian merger as a bullish signal for deal completion.

Main Topics: Bragg Gaming: Investment Thesis and Call for Sale (Priority: 5/5): Jeremy Rayber presents a detailed analysis of Bragg Gaming, a B2B iGaming provider. He argues that the company's structural position—where successful clients often insource or get acquired—creates a 'damned if you do, damned if you don't' scenario. He advocates for a sale, citing a low public valuation (4-5x EBITDA) versus private market multiples (mid-teens). Bragg Gaming: Business Model Evolution and Risks (Priority: 4/5): The discussion covers Bragg's pivot from a pure B2B tech provider to a content-focused aggregator. Key risks include the loss of its largest client (BetCity, acquired by Entain) and a history of poor capital allocation, including a dilutive convertible note issued in 2022. Spirit-JetBlue Merger: Antitrust Trial Analysis (Priority: 5/5): Jeremy and Andrew analyze the ongoing trial, arguing the government's case is weak and poorly argued. They highlight the narrow legal basis for blocking the merger and the judge's early skepticism about Spirit's business model sustainability. Spirit-JetBlue: Impact of Alaska-Hawaiian Merger Announcement (Priority: 4/5): The hosts discuss the recent Alaska Airlines acquisition of Hawaiian Airlines as a bullish signal for the Spirit-JetBlue deal. They argue it demonstrates private market interest in distressed airline assets and reduces the risk of a price renegotiation if JetBlue wins the trial. Capital Allocation and Management Quality (Priority: 3/5): A recurring theme across both situations is the importance of management's capital allocation decisions. Jeremy criticizes Bragg's past convertible note deal and praises the recent CEO change, while both hosts critique the government's legal strategy in the Spirit case.

Key Arguments: Bragg Gaming should sell itself because its public valuation (4-5x EBITDA) is far below private market multiples (mid-teens), and the company faces structural risks from client insourcing. The government's antitrust case against the Spirit-JetBlue merger is weak because it relies on a narrow theory of harm (harm to a small subset of consumers on a few routes) without strong evidence. The Alaska-Hawaiian merger announcement before the Spirit-JetBlue closing arguments signals that other airlines believe the government's case is weak and that consolidation is necessary. Bragg's pivot from B2B tech to content aggregation is strategically sound, but the company's past capital allocation (e.g., the 2022 convertible note) has been poor. Spirit's business model is unsustainable as a standalone entity, as evidenced by its distressed bond prices and the judge's early questioning of its viability.

Data Points: Bragg Gaming EBITDA (current year): 17 million Euro - Jeremy Rayber's estimate for the current fiscal year. Bragg Gaming EBITDA (next year): 20-21 million Euro - Jeremy's estimate for the next fiscal year. Bragg Gaming valuation multiple: 4-5x EBITDA - Current public market valuation, compared to private market multiples of mid-teens. BetCity revenue as % of Bragg total: 33-34% - Current percentage, down from low 40% a year ago. Spirit-JetBlue trial probability of government win (Jeremy's estimate): 20-25% - Jeremy's personal estimate, noting lawyers put it at 60% due to government deference. Alaska-Hawaiian acquisition premium: 400% - Premium over Hawaiian Airlines' pre-announcement stock price. Bragg Gaming convertible note size: $10-15 million - Issued in September 2022 to LIND hedge fund at a 5% discount to VWAP.

Pivotal Quotes: "You're sitting in the middle between your customers who, you know, the more successful you make them, the more ability you give them to get off, and the potential acquirers of those assets who will inevitably look to cut you out. So it's kind of, you know, you're damned if you do, you're damned if you don't." — Jeremy Rayber: Explaining the structural risk for Bragg Gaming as a B2B provider. "The government's argument is just a weak argument. Like it's just a bad argument. Not only is it a weak argument, it's been weakly argued." — Jeremy Rayber: Critiquing the government's antitrust case against the Spirit-JetBlue merger. "What a massive F you to the government. They haven't even got to closing arguments. And already these other airlines are coming out saying we can dunk on the government." — Jeremy Rayber: Reacting to the Alaska-Hawaiian merger announcement during the Spirit-JetBlue trial.

Implications: For Bragg Gaming, a sale is likely and could unlock significant value for shareholders. For Spirit-JetBlue, the trial outcome is uncertain but the government's weak case and the Alaska-Hawaiian merger suggest a higher probability of deal closure. Investors should monitor the judge's ruling and potential private market interest in distressed airline assets.