better collective - amazon s3€¦ · better collective sector: betting/entertainment redeye rating...

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Update

Equity Research 25 August 2019

KEY STATS

Ticker BETCO Market Nasdaq

Share Price (SEK) 82 Market Cap (MSEK) 3 500 Net Debt 19E (MSEK) 330 Free Float 40 %

Avg. daily volume (‘000) 9

BEAR BASE BULL 53

98

159

KEY FINANCIALS (EUR)

2017 2018 2019E 2020E 2021E 2022E Net sales 26 40 69 91 112 131 EBITDA 11 12 31 42 53 61 EBIT 10 9 24 34 45 52 EPS (adj.)

2017 2018 2019E 2020E 2021E 2022E EPS (adj.) 0.3 0.3 0.4 0.6 0.8 0.9 EV/Sales 5.6 4.4 5.2 3.7 2.7 2.0 EV/EBITDA 13.8 14.6 11.6 7.9 5.6 4.3 EV/EBIT 14.8 19.6 14.8 9.7 6.7 5.0 P/E 18.2 19.4 19.4 13.8 10.2 8.7

ANALYSTS

Jonas Amnesten [email protected] Kristoffer Lindström kristoffer.lindströ[email protected]

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Better Collective

In pole position As the world’s No. 1 sports betting affiliate with clear competitive advantages and less

regulatory risk than its peers, Better Collective offers investors an attractive, shareholder-

friendly exposure to an undervalued industry with a stronger outlook than the challenged

casino sector. We look for sustained growth and a scalable business.

Underlying strength

Revenues grew 64% in the second quarter, with organic growth at 18%. Underlying NDC

growth of 68%, together with its very strong performance on this measure in Q1, was the

main driver. We believe this momentum will continue as well as accelerate as the business

expands with the US market as the main driver.

US entry

Better Collective entered the US market with two acquisitions in the last three months. This

positions it well as more and more US states legalise online betting. The US move

highlights Better Collective’s approach of only operating in regulated and taxed markets,

which lowers its risk of unexpected regulatory action.

Value chain challenge

The affiliate industry´s customers, the operators, have long disputed its position in the

value chain. Yet Better Collective is stronger than ever. While affiliates’ dependence on

search engines, excessive margins, CPA agreements and poor integrations are genuine

threats, we regard Better Collective’s unique position as shielding it from them.

Premium growth case

The company’s market leadership merits a premium valuation. It offers greater potential

than peers at lower risk. Thanks to its substantial growth opportunities (including large

markets outside Europe) and highly scalable business model, it should ramp up earnings

rapidly. Our DCF analysis indicates potential upside of about 20% to our base case

valuation of SEK 98.

Better Collective Sector: Betting/Entertainment

REDEYE RATING

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REDEYE Equity Research Better Collective 25 August 2019

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US expansion and profitable growth

Better Collective´s second quarter, in 2019, was a solid quarter, especial given the weak Q2

performance that has been reported by both competitors and operators. The revenues grew

with 6% Q/Q, and 64% Y/Y (18% organic growth). Strong growth, but still slightly lower than

expected and revenues came in 1% below estimates. Revenue generated from Rev-share

agreements increased to 74% from 72% in Q1’19.

The cost of goods sold came in above expectations which together with the lower revenue

resulted in a gross profit -2% below estimates. EBITDA and EBIT before special items also

came in -2% below estimates. However, as the cost for special items was much lower than

estimated the EBIT came in 4% above estimates. The EPS came in 1% above estimates and

improved from EUR -0.04 in Q2’18 to EUR 0.09 in Q2’19.

All in all, the profitable growth journey continues despite an underperforming market in Q2.

The first US acquisition was consolidated from June, having a minor effect on the quarter.

As shown in the table above, the underlying NDC growth is driving the revenues, with some

delay. After an extremely strong Q/Q increase in Q1’19 the NDC number dropped slightly in

Q2’19, 116k to 111k. The NDC level has, however, increased rapidly the last year, and due to

the delay in revenues from NDC (3-9 months), the current NDC level should continue to fuel

growth in the short-term.

Better Collective: Expected vs. Actual

(EURm) Q2'18 Q2'19 Q2'19E Diff

Revenues 9.7 15.8 16.0 -1%

Gross profit 8.7 14.3 14.6 -2%

EBITDA 3.9 7.0 7.1 -2%

EBIT -0.3 5.4 5.2 4%

EPS -0.04 0.09 0.09 1%

Sales growth Y/Y 93% 64% 66%

Sales growth Q/Q 28% 6% 8%

Gross margin 90% 90% 91%

EBITDA margin 40% 44% 44%

EBIT margin -4% 34% 33%

Source: Better Collective, Redeye Research

Better Collective: NDC and Revenues


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As a whole, Better Collective long-term trend is positive. With increasing revenues together

with improved or maintained underlying margins.

Events and actions during the quarter

• Entering the US market with the acquisitions of 60% of Rical LLC (RotoGrinders) and

signing a partnership with NJ Advance Media LCC as well as rev-share model

license in New Jersey. After the quarter Better Collective also acquired the Florida

based assets Vegasinsider.com and Scoresandodds.com. The US market has a

huge potential, and with these actions we expect the US market to be a strong

growth driver for Better Collective going forward.

• Expanded the credit facilities with approximately EUR 40m. Enabling Better

Collective to continue with its acquisition strategy.

Q2 in summary

A solid quarter for Better Collective with high growth and strategic acquisitions. We are

confident that the growth story will continue, both organically and through acquisitions.

Better Collective: Revenues and EBITDA margin


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Better Collective: EBT and EBIT margin


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Forecast We believe better Collective will continue to show double-digit organic growth in the years to

come. The company also has the right prerequisites to continue its value-adding acquisition

strategy.

Organic growth

The organic for Better Collective has deviated much quarter to quarter. We believe the

volatility relates to the volatility in betting margins as well as several acquisitions that distort

the data. On average, organic growth has been around 20% in the last two years.

Going forward, we believe that the organic growth rate in existing (established markets such

as Germany, UK, France, Denmark, and Sweden) markets will be around 5-10% with the

addition of new products. The expansion into new markets will be the main organic growth

driver as several of Better Collective´s existing brands are suitable for both North- and South-

America. These brands, such as Bettingexpert.com, should be boosted by the acquisitions

where local knowledge and skills can help with market penetration.

In a longer perspective, we believe the US acquisitions will contribute with organic growth

beyond 2020 as the huge US market is regulated.

Acquired growth

It is obvious that acquisitions have been an important growth driver for Better Collective. We

expect that this will continue being the case as Better Collective still has a solid financial

position. The risk with the acquisition is that Better Collective isn´t able to manage all the

acquisitions and that we will see a similar development as for several of its peers. However,

Better Collective has a strong track record and has a clear acquisition strategy.

After two acquisitions in the US market, we believe that Better Collective is quite satisfied

with its presence on the US market. It is likely that the next acquisition will come in new

markets either in Europe or Latin-America.

Better Collective: Growth rate and Organic growth rate


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Better Collective: Financial forecasts

(EURm) 2015 2016 2017 2018 Q1'19 Q2'19 Q3'19E Q4'19E 2019E 2020E 2021E

Revenue 11.4 17.4 26.3 40.5 14.9 15.8 18.3 19.7 68.7 90.6 111.6

EBITDA 3.8 7.1 11.0 16.2 6.7 7.0 8.3 9.1 31.1 42.7 53.7

EBIT 3.8 7.1 9.9 9.1 5.2 5.4 6.3 7.1 24.0 34.1 44.6

PTP 2.9 5.2 7.4 5.4 3.7 3.7 4.1 4.7 16.2 23.4 32.4

EPS, EUR 0.11 0.19 0.27 0.16 0.09 0.09 0.10 0.11 0.39 0.55 0.75

Growth Y/Y (%) 52% 53% 51% 54% 97% 64% 64% 62% 70% 32% 23%

Growth Q/Q (%) 23% 6% 15% 8%

Gross margin (%) 87% 86% 89% 89% 91% 90% 90% 90% 90% 91% 91%

EBITDA (%) 33% 41% 42% 40% 45% 44% 46% 46% 45% 47% 48%

EBIT before spec. item (%) 33% 41% 39% 32% 35% 35% 35% 37% 36% 38% 40%

EBIT (%) 33% 41% 38% 22% 35% 34% 34% 36% 35% 38% 40%

Source: Redeye Research

Growth potential

• Underlying market: Underlying growth in existing markets and the main verticals is

estimated at a CAGR of about 5% for 2018-23, according to H2GC.

• New markets: We believe that Better Collective will continue to enter new regulated

markets in the coming years. This will be an important growth driver for several

years to come, especially as the US market is opening up. The group is also well-

positioned in the fast-growing South American sports betting market. Furthermore,

beyond the next three years we believe that Asia can become an important growth

driver, as well.

• Improving the products: Site improvements and network effects will improve the

user experience, which should increase the number of new users and thus boost

revenues.

• Competitive advantage: We expect that Better Collective´s strong position, loyal

players, and competitive advantage will lead to more sustainable growth.

• New in-house sites: We expect that Better Collective will develop some new sites

when it identifies the right market opportunity. We do not consider this a significant

growth driver though.

• Acquisitions: An important growth driver over the past two years has been

acquisitions, and we know that Better Collective has a strong pipeline of potential

purchases that can boost the growth rate further.


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Better Collective: Financial forecasts

(EURm) 2015 2016 2017 2018 Q1'19 Q2'19 Q3'19E Q4'19E 2019E 2020E 2021E

Cost of sales -1.5 -2.5 -3.0 -4.4 -1.4 -1.6 -1.8 -1.9 -6.6 -8.5 -10.0

Cost of sales % of revenues 13% 14% 11% 11% 9% 10% 10% 10% 10% 9% 9%

Staff costs -4.6 -5.6 -7.6 -13.0 -4.2 -4.8 -5.4 -5.7 -20.1 -25.7 -30.9

Staff costs % revenues 40% 32% 29% 32% 28% 30% 30% 29% 29% 28% 28%

Other exter. exp. -1.5 -2.2 -4.8 -6.9 -2.7 -2.6 -2.8 -2.9 -10.9 -13.7 -17.0

Other exter. exp. % of rev. 13% 13% 18% 17% 18% 16% 15% 15% 16% 15% 15%


Cost allocation

• Cost of sales: We expect this expenses category to decrease slightly in relation to

revenues over time. As the group grows, upkeep per site in its network will decrease.

• Staff costs: This is the largest expense category for Better Collective, and we believe

it will remain so. To have the right SEO and site development talent is key if Better

Collective is to remain competitive over time. However, Better Collective’s staff

costs are about 10 percentage points higher, in relation to revenues, than its peers’.

We believe that Better Collective can decrease staff costs in relation to revenues

over time as the business scales and still attract the right talent.

• Other external expenses: This includes expenses from the group’s core activities,

such as from sales, advertising, administration, payment of operating leases, etc.

We expect that this category will, in relation to revenues, decrease slightly in the long

run through business scalability. The current level is in line with peers though.


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Profit margins

Better Collective’s business model is very scalable, and we believe there is room for margin

improvements over the next few years. Especially since the personnel expenses are much

larger, in relation to revenues than for its peers. We do, however, expect that Better Collective

will continue focusing on growth and therefore continue to invest heavily. Moreover, in the

long-run, beyond 2021 we see a risk of increased margin pressure due to increased gaming

tax and consolidation among the operators. Increased gaming tax will continue to pressure

the margins for the operators and the consolidation among the operators will increase their

purchase power. Nevertheless, we believe the effect will be limited for Better Collective due to

the company´s strong position.

Estimate revision

The effects of our estimate adjustments are illustrated in the table below. We expect the US

acquisitions together with increased investments will boost growth, beyond 2019. Expenses

connected growth initiatives, and increasing financial expenses relating to the acquisitions

lowered the EPS.

Better Collective: EBT and EBIT margin


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(SEKm) New Old % chg New Old % chg

Revenues 69 69 -1% 91 88 3%

EBIT 24 24 -1% 34 34 0%

EBIT margin 35% 35% 38% 39%

EPS 0.39 0.41 -6% 0.55 0.57 -5%


2020E2019E


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Investment Thesis • Quality communities

• Strong vertical

• Value-adding M&A

• ‘Skin in the game’

Quality communities

Through sites like bettingexpert.com that create real value for customers, Better Collective is

building its affiliate network for the long term and attracting revenue share-based partnership

agreements. Its customers focus is generating strong organic growth and building a

business that operators cannot afford to neglect.

Its community sites are also creating a network effect. Their increasing size increases their

value for users and creates barriers against new competitors. Moreover, much of their traffic

to the sites is direct, leading to limited dependence on both Google and expensive paid

media.

Strong vertical

Better Collective’s focus on sports betting positions it in an area with significant potential.

Sports betting is growing faster than the casino segment and is less challenging from a

regulatory perspective. The main driver is the shift from land-based to online and

smartphones, that suites sports betting very well. The sports betting vertical is also suitable

for communities as tips and knowledge-sharing are beneficial for the users. Moreover, the US

market is opening up and could exceed its European counterpart within 10 years. In addition,

several high potential markets are opening in South America too.

Value-adding M&A

Better Collective´s good reputation within the industry and solid financial position enables it

to acquire superior targets than competitors, in our view. To create long-term value Better

Collective makes sure to integrate the employees and creators responsible for its

acquisitions’ past success. Keeping them on board is key to maintaining high performance. In

addition, Better Collective’s platform enables swift and smooth integration of the acquired

site network.

‘Skin in the game’

Better Collective’s ownership structure involves almost all of senior management and the

board having ‘skin in the game’. The CEO and COO control more than 60%, while the CFO also

owns a substantial stake. With this level of shareholder alignment in the business, we

anticipate dedication and shareholder-friendly decisions.


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Counter-Thesis - Bear Points

Google exposure

Better Collective is not as dependent on Google as many of its competitors. Even so, the

traffic from search engines, mainly Google, is still the largest traffic source. Meaning, that

changes to Google’s search algorithms might worsen Better Collective’s traffic volumes from

Google, and in the end affecting the revenues. Moreover, Google could shift to a less tolerant

stance towards gambling in the future. This could have a negative long-term impact on this

source of traffic.

Regulatory threats

Regulation and re-regulation could impact Better Collective negatively. Its B2B customers

(operators) could be prevented from offering gambling and betting to their customers

(players). As a result, Better Collective would not be able to lead players to the operators.

Marketing restrictions enforced by regulators could also potentially limit the company´s

scope to bring players to operators.

Over-profitability

Most listed affiliates have EBIT margins of at least 40%. However, as operators’ gaming

taxes, compliance expenses and competition increase, their profit margins are under

pressure. Over time, we can presume that, some of this pressure will affect other parts of the

value chain, such as affiliation. This will lead to lower affiliate commissions and, ultimately,

lower profit margins.

Valued at a premium

The high investor expectations embedded in Better Collective’s premium valuation will only

be met if it outperforms its affiliate peers. Failure to do so will hurt the share price.


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Valuation We derive our fair value from a fundamental DCF analysis with three scenarios - base case

(most likely), bear case (pessimistic) and bull case (optimistic). A central part of the analysis

is the weighted average cost of capital (WACC). Redeye uses its own rating model, Redeye

Rating, to estimate a WACC that reflects the company’s qualities and risks. Based on Redeye

Rating, we estimate a WACC of 10.0%, which is used in all three scenarios.

Our DCF analysis indicates a value range of SEK 53-159 with a base case of SEK 98 per

share.

DCF-valuation – Base Case

Summary:

• Sales CAGR of about 19% between 2018 and 2028

• Average EBIT margin of approximately 33% during the period

• Terminal growth of 2% and terminal EBIT margin of 28%

• Our base case scenario factors in Better Collective managing to maintain its

competitive advantage and strong margins while expanding into both the US and

South America – though we anticipate that it will be many years before even half of

US states legalise online sports betting.

Better Collective’s acquisitions in the US market will be important growth drivers going

forward. Also, we expect that the company will be able to grow its existing brands, such as

Bettinexpert.com, on the US market as well, although the legislation will take time. Moreover,

we see a large potential in for Better Collective in South America, and we expect Better

Collective to outperform its peers on existing markets.

We expect that Better Collective will maintain its competitive advantage thanks to the

communities with their network effects. Due to this, we believe that Better Collective will be

able to maintain high margins and only have some minor margin pressure over the long term.

We do not include any significant acquisitions in our base case estimates though, as we do

not know if the acquisitions will add value. With the right conditions, however, acquisitions

are a potential key catalyst for Better Collective.

Our base case yields a fair value of SEK 98 (95) per share.

Better Collective: Base case assumptions

Assumptions: 2018-28 2018-21 2021-28 DCF-value

CAGR Sales 18.6% 40.2% 10.3% WACC 10.0%

EBIT margin (avg.) 33.2% 33.8% 33.8% PV of FCF 168

ROE (avg.) 18% 18% 19% PV of Terminal Value 207

Terminal EV 374

Growth of FCF 2.0% Net cash 7

EBIT margin 28.0% Dividend correction 0

EV/S Exit multiple 2.3x

EV/EBIT Exit multiple 8.1x

DCF-value 381

Fair value per share 98

Todays price 82

Potential/Risk 19%



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Peer valuation

Better Collective has outperformed its peers1, as illustrated below. The overall gambling

industry has been hurt by regulatory concerns and uncertainties over the European market,

especially Sweden. Although both Price/Sales and EV/EBITDA multiples of pure affiliate

companies have fallen since the start of 2018, Better Collective is still valued at higher

multiples than peers.

The industry’s P/S multiple has fallen sharply since companies’ Q4 18 reports and issues on

the re-regulated Swedish market. The development has continued since the start of Q2. Peers

are now valued below two times TTM sales, whereas Better Collective trades above five

times. However, the strong growth in 2019 that we forecast is likely to lower this gap.

The industry’s EV/EBITDA multiple has fallen from around 10x to around 5x over the last year.

This is largely driven by lower growth rates and halted margin expansion, as well as

regulatory issues. This development has continued since the start of Q2. The strong growth

and EPS improvements that we forecast for Better Collective in 2019 partly explains its much

higher multiples.

1 Catena Median, Raketech, Net Gaming Europe and XL Media

Better Collective: Price/Sales multiple LTM, Better Collective vs Peers

Source: Bloomberg, Redeye Research

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Better Collective: EV/EBITDAs multiple LTM, Better Collective vs Peers

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Peer valuation

SALES CAGR

Company EV (MSEK) 2018 2019E 2020E 2018 2019E 2020E 18-20E 2018 2019E 2020E

Operators

Catena Media 3 707 3.4x 3.3x 2.9x 7.6x 7.5x 5.9x 9% 37% 31% 37%

XL Media 1 266 1.2x 1.4x 1.4x 4.5x 3.4x 3.2x -6% 22% 34% 34%

Net Gaming Europe 532 2.8x 3.1x 2.8x 4.2x 5.0x 4.5x 0% 64% 56% 55%

Raketech 493 1.9x 1.8x 1.7x 3.7x 3.2x 3.4x 4% 44% 42% 37%

Median 899 2.3x 2.4x 2.3x 4.3x 4.2x 3.9x 2% 41% 38% 37%

Better Collective 3 893 9.0x 5.3x 4.0x 22.4x 11.7x 8.5x 50% 22% 35% 38%

At Base case* 4 569 10.5x 6.2x 4.7x 26.3x 13.7x 10.0x

Source: Bloomberg & Redeye Research

EV/EBITDA EBIT marginEV/Sales

Although peer multiples (based on consensus estimates) are far below Better Collectives. We

expect Better Collective to grow faster, both organically and through acquisitions, than peers

over the coming years and to raise its margins more. Moreover, as noted, it has competitive

advantages compared to its peers that create higher barriers of entry, in our view.

Accordingly, we believe this justifies Better Collective’s premium valuation.

At the same time, both we and investors have high expectations of Better Collective. Any

failure to meet these expectations will hurt its valuation.

Moreover, we believe that the affiliate industry is generally valued lower than justified. With

2020E EV/EBITDA multiples far below 10x despite strong double-digit growth, we believe that

investors are taking too pessimistic a view.

Free float and liquidity

Better Collective´s free float and liquidity are very limited. This hampers valuation as it

increases the risk for potential investors. We believe that Better Collective would benefit from

issuing new shares for shareholder diversification purposes. This could go well together with

the M&A strategy and keep the debt ratios at a healthy level.


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Catalysts

We see several potential catalysts within the next 12 months that may close the valuation

gap between the share’s current level and our base case.

• Acquisitions: a large value-adding acquisition of a local brand in a new market at low

multiples will enable multiple expansion.

• US market: promisingly strong NDC intake in the US for Better Collective’s brands

could be a major long-term growth driver.

• Improved multiples: investors value the affiliate industry at very low multiples since

they expect EPS to decline. If EPS is maintained or improved, however, we believe

the multiples will increase.

• Beneficial regulator changes: if the authorities, in a main market, prohibits

conventional marketing, such as TV and radio, this could have major positive affect

on Better Collective´s operations in that market.

Scenarios analysis

Bull case

Summary:




• Our bull case scenario assumes continued strong, above-industry average growth in

existing markets as well as a successful expansion into North and South America.

Against this background, it estimates Better Collective managing to maintain its

high margins in the long term. Moreover, it anticipates the group continuing to be an

active consolidator and making several value-adding acquisitions in the next few

years.

Our Bull case yields a fair value of SEK 159 per share.

Bear case

Summary:




• Our Bear case assumes a higher number of competitors and lower traffic from

Google. Expansions into new markets take longer than anticipated and several

acquisitions underperform, hampering future growth. Moreover, margins are

pressured down towards operators’ levels.

Our Bear case yields a fair value of SEK 53 per share.


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Valuation summary Our base case DCF analysis shows Better Collective achieving strong future cash flows. This

reflects its unique, market-leading position and clear competitive advantage. As we expect

the company to grow faster than peers and maintain strong margins, we believe that the

share merits a premium valuation.

However, sentiment towards the affiliation segment is weak, as peer comparisons

underscore. Moreover, the stock’s limited liquidity (despite being listed on Mid Cap

Stockholm) increases risk for investors – though this should diminish over time as interest in

Better Collective increases.

Redeye wants to understand and value the companies we cover better than anyone else. So

we’re refining our unique approach to assessing investment cases. Our new rating model

evaluates companies across as many as 100 criteria. It is ultimately designed to generate

more appropriate estimations of WACC than traditional financial theory.

In Redeye’s view, a realistic hands-on approach that combines fundamentals with common

sense is called for in analysing small growth stocks. These lack the market visibility and

trading liquidity of large-cap names. Our new model is a bold and important move in Redeye’s

pursuit of leadership in our sectors.

Our DCF valuation indicates a value range of SEK 53-159, with a base case of SEK 98 per

share.

Better Collective: Fair value range


Last price 82

0 50 100 150 200Bear-case: 53Bear-case: 53 Base-case: 98 Bull-case: 159

Bear Case 53 SEK Base Case 98 SEK Bull Case 159 SEK Sales CAGR of about 16% between 2018 and 2028 Average EBIT margin of approximately 26% during the period Terminal growth of 2% and terminal EBIT margin of 17% Our Bear case assumes a higher number of competitors and lower traffic from Google. Expansions into new markets take longer than anticipated and several acquisitions underperform, hampering future growth. Moreover, margins are pressured down towards operators’ levels.

Sales CAGR of about 19% between 2018 and 2028 Average EBIT margin of approximately 33% during the period Terminal growth of 2% and terminal EBIT margin of 28% Our base case scenario factors in Better Collective managing to maintain its competitive advantage and strong margins while expanding into both the US and South America – though we anticipate that it will be many years before even half of US states legalise online sports betting.

Sales CAGR of about 23% between 2018 and 2028 Average EBIT margin of approximately 39% during the period Terminal growth of 2% and terminal EBIT margin of 35% Our bull case scenario assumes continued strong, above-industry average growth in existing markets as well as a successful expansion into North and South America. Against this background, it estimates Better Collective managing to maintain its high margins in the long term. Moreover, it anticipates the group continuing to be an active consolidator and making several value-adding acquisitions in the next few years.


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Summary Redeye Rating The rating consists of three valuation keys, each constituting an overall assessment of several factors that are rated

on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.

Rating changes in the report

People: 5

We regard management as capable, with notable industry experience. Impressively, Jesper Søgaard and Christian Kirk Rasmussen

have taken Better Collective from a single site to the world’s leading sports betting affiliate. However, board members average a

relatively short history with the company. The founders, who are also part of top management, hold the majority of the shares. We

consider this positive as this creates long-term alignment with shareholders. Chairman of the board Jens Bager holds 2.6%, while

several other board members and the CFO also have significant shareholdings. This strengthens the ownership structure further.

Moreover, Better Collective has several institutional investors among its largest owners, which we view as a further stamp of

quality.

Business: 4

The bulk of sales are generated from regulated markets, which mitigates regulatory risk. The US market and several large South

American markets offers a large potential for Better Collective, as they are being regulated. The operations are also highly scalable,

and the gross margin is around 90%. Better Collective’s community sites create network effects and barriers against new

competitors. Moreover, much of the sites’ traffic is direct, leading to low dependence on Google and expensive paid media

compared to peers. On the negative side, Better Collective is still exposed to regulatory risks and potential margin pressure.

Furthermore, despite its rapid growth pace Better Collective still has strong profit margins above 40%. Cash flow is solid, while

several recent acquisitions had very strong EBITA margins. We expect margins to remain at a high level in the coming years.

Financials: 3

Better Collective is a very active and successful industry consolidator. While this hurts its financial position, we still see room for

further acquisitions as net debt/EBITDA is still below the company´s financial targets and the company can issue new shares, at a

low discount, to strengthen the balance sheet.


16

PROFITABILITY 2017 2018 2019E 2020E 2021E ROE 72% 11% 17% 21% 23% ROCE 74% 16% 20% 24% 28% ROIC 1565% 32% 23% 19% 25% EBITDA margin 40% 30% 45% 47% 48% EBIT margin 38% 22% 35% 38% 40% Net margin 28% 13% 24% 26% 29%

Please comment on the changes in Rating factors……

INCOME STATEMENT 2017 2018 2019E 2020E 2021E Net sales 26 40 69 91 112 Total operating costs -16 -28 -38 -48 -58 EBITDA 11 12 31 42 53 Depreciation 0 0 0 0 0 Amortization -1 -3 -7 -8 -8 Impairment charges 0 0 0 0 0 EBIT 10 9 24 34 45 Share in profits 0 0 0 0 0 Net financial items 0 -1 -2 -3 -2 Exchange rate dif. 0 0 0 0 0 Pre-tax profit 10 8 22 31 43 Tax -2 -3 -5 -8 -11 Net earnings 7 5 16 23 32

BALANCE SHEET 2017 2018 2019E 2020E 2021E Assets Current assets Cash in banks 2 16 7 12 33 Receivables 4 8 11 14 18 Inventories 0 0 0 0 0 Other current assets 0 1 2 3 3 Current assets 7 25 20 29 54 Fixed assets Tangible assets 1 1 2 2 2 Associated comp. 0 0 0 0 0 Investments 0 0 0 0 0 Goodwill 7 24 36 36 36 Cap. exp. for dev. 0 0 0 0 0 O intangible rights 24 98 142 140 140 O non-current assets 0 0 0 0 0 Total fixed assets 32 124 179 178 178 Deferred tax assets 0 0 0 0 0 Total (assets) 39 149 199 207 232 Liabilities Current liabilities Short-term debt 5 0 0 0 0 Accounts payable 5 4 8 11 13 O current liabilities 8 20 20 20 20 Current liabilities 18 24 29 31 34 Long-term debt 1 9 39 20 10 O long-term liabilities 0 9 9 10 10 Convertibles 0 0 0 0 0 Total Liabilities 18 42 77 61 54 Deferred tax liab 6 21 21 21 21 Provisions 0 0 0 0 0 Shareholders' equity 15 86 102 125 158 Minority interest (BS) 0 0 0 0 0 Minority & equity 15 86 102 125 158 Total liab & SE 39 149 199 207 232

FREE CASH FLOW 2017 2018 2019E 2020E 2021E Net sales 26 40 69 91 112 Total operating costs -16 -28 -38 -48 -58 Depreciations total -1 -3 -7 -8 -9 EBIT 10 9 24 34 45 Taxes on EBIT -2 -3 -6 -9 -11 NOPLAT 8 6 18 26 34 Depreciation 1 3 7 8 9 Gross cash flow 8 9 25 34 42 Change in WC 7 8 0 -2 -1 Gross CAPEX -31 -95 -62 -7 -9 Free cash flow -16 -78 -38 25 32 CAPITAL STRUCTURE 2017 2018 2019E 2020E 2021E Equity ratio 38% 58% 51% 61% 68% Debt/equity ratio 40% 11% 38% 16% 6% Net debt 4 -7 32 8 -23 Capital employed 19 79 134 134 135 Capital turnover rate 0.7 0.3 0.3 0.4 0.5 GROWTH 2017 2018 2019E 2020E 2021E Sales growth 51% 54% 70% 32% 23% EPS growth (adj) 51% -2% 42% 40% 36%

DATA PER SHARE 2017 2018 2019E 2020E 2021E EPS 0.27 0.16 0.39 0.55 0.75 EPS adj 0.28 0.28 0.40 0.56 0.76 Dividend 0.00 0.00 0.00 0.00 0.00 Net debt 0.14 -0.20 0.77 0.20 -0.53 Total shares 27.50 34.02 41.82 42.76 43.32 VALUATION 2017 2018 2019E 2020E 2021E EV 146.5 177.8 355.5 331.9 300.5 P/E 18.2 19.4 19.4 13.8 10.2 P/E diluted 18.2 19.4 19.4 13.8 10.2 P/Sales 5.4 4.6 4.7 3.7 3.0 EV/Sales 5.6 4.4 5.2 3.7 2.7 EV/EBITDA 13.8 14.6 11.6 7.9 5.6 EV/EBIT 14.8 19.6 14.8 9.7 6.7 P/BV 9.7 2.2 3.2 2.6 2.0

SHARE INFORMATION Reuters code BETCO List Nasdaq Share price 82 Total shares, million 42.3 Market Cap, MSEK 3 500 MANAGEMENT & BOARD CEO Jesper Søgaard CFO Flemming Pedersen IR Christina Bastius Thomsen Chairman Jens Bager FINANCIAL INFORMATION ANALYSTS Redeye AB Jonas Amnesten Mäster Samuelsgatan 42, 10tr [email protected] 111 57 Stockholm Kristoffer Lindström kristoffer.lindströ[email protected]

SHARE PERFORMANCE GROWTH/YEAR 16/18E 1 month -4.7 % Net sales 61.8 % 3 month 6.3 % Operating profit adj 56.1 % 12 month 11.3 % EPS, just 18.2 % Since start of the year 33.6 % Equity 163.0 %

SHAREHOLDER STRUCTURE % CAPITAL VOTES Jesper Søgaard 23.5 % 23.5 % Christian Kirk Rasmussen 23.5 % 23.5 % Better Partners ApS 12.4 % 12.4 % Chr. Augustinus Fabrikker A/S 4.7 % 4.7 % Tredje AP-Fonden 3.1 % 3.1 % Jens Bager 2.6 % 2.6 % Öhman Bank 2.6 % 2.6 % Andra AP-Fonden 2.4 % 2.4 % Knutsson Holdings 2.4 % 2.4 % Ribacka Group Holdings 1.7 % 1.7 %

DCF VALUATION CASH FLOW, MEUR WACC (%) 10.0 % NPV FCF (2018-2020) 13 NPV FCF (2021-2027) 155 NPV FCF (2028-) 207 Non-operating assets 16 Interest-bearing debt -9 Fair value estimate MEUR 381 Assumptions 2017-2023 (%) Average sales growth 18.3 % Fair value e. per share, SEK 98 EBIT margin 36.5 % Share price, SEK 82


17

Redeye Rating and Background Definitions Company Quality

Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE. These

are the building blocks that enable a company to deliver sustained operational outperformance and attractive long-

term earnings growth.

Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely

accepted and tested investment criteria and used by demonstrably successful investors and investment firms. Each

sub-category may also include a complementary check that provides additional information to assist with

investment decision-making.

If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score for

each sub-category. The overall score for a category is the average of all sub-category scores, based on a scale that

ranges from 0 to 5 rounded up to the nearest whole number.

The overall score for each category is then used to generate the size of the bar in the Company Quality graphic.

People

At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a business

is a significant part of understanding the long-term drive of the company. It all comes down to doing business with

people you trust, or at least avoiding dealing with people of questionable character.

The People rating is based on quantitative scores in seven categories: Passion, Execution, Capital Allocation,

Communication, Compensation, Ownership, and Board.

Business

If you don’t understand the competitive environment and don’t have a clear sense of how the business will engage

customers, create value and consistently deliver that value at a profit, you won’t succeed as an investor. Knowing

the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.

The Business rating is based on quantitative scores grouped into five sub-categories: Business Scalability, Market

Structure, Value Proposition, Economic Moat, and Operational Risks.

Financials

Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the

financial soundness of a business. Also, these ratios are key factors that will impact a company’s financial

performance and valuation. However, you only need a few to determine whether a company is financially strong or

weak.

The Financial rating is based on quantitative scores that are grouped into five separate categories: Earnings Power,

Profit Margin, Growth Rate, Financial Health, and Earnings Quality.


18

Redeye Equity Research team

Management Björn Fahlén

[email protected]

Håkan Östling

[email protected]

Technology Team Jonas Amnesten

[email protected]

Henrik Alveskog

[email protected]

Dennis Berggren

[email protected]

Havan Hanna

[email protected]

Kristoffer Lindström

[email protected]

Fredrik Nilsson

[email protected]

Tomas Otterbeck

[email protected]

Eddie Palmgren

[email protected]

Oskar Vilhelmsson

[email protected]

Viktor Westman

[email protected]

Linus Sigurdsson (Trainee)

[email protected]

Editorial Jim Andersson

[email protected]

Eddie Palmgren

[email protected]

Mark Sjöstedt

[email protected]

Johan Kårestedt (Trainee)

[email protected]

Life Science Team Anders Hedlund

[email protected]

Arvid Necander

[email protected]

Erik Nordström

[email protected]

Klas Palin

[email protected]

Jakob Svensson

[email protected]

Ludvig Svensson

[email protected]

Oskar Bergman (Trainee)

[email protected]

Alexander Ribrant (Trainee)

[email protected]


19

Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). 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, from the date Redeye publishes its analysis plus one trading day 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 (2019-08-25)

Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB.

Rating People Business Financials

5p 10 7 0 3p - 4p 44 37 26 0p - 2p 25 35 53 Company N 79 79 79

CONFLICT OF INTERESTS

Jonas Amnesten owns shares in the company : Yes Kristoffer Lindström owns shares in the company : No Redeye performs/have performed services for the Company and receives/have

received compensation from the Company in connection with this.

better collective - amazon s3€¦ · better collective sector: betting/entertainment redeye rating...

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