We estimated with a strong 2020 for Better Collective as we saw several strong catalysts during the year.
Better Collective delivered on the first two notes, with an impressive Q4’19 report and an exciting E-sport acquisition, which we will elaborate further on below. The major horse race event, the Cheltenham Festival, was also squeezed in just before the coronavirus hit the UK. Since then, the news flow has been all about the coronavirus and canceled sports events. As a result, the eventful year of 2020, with EURO 2020 and the Olympics, ended up being quite uneventful, a total anticlimax on that note.
We still believe in the case and expect that the US operations will be a significant growth driver during H2 2020, and beyond, as long as the Corona epidemic calms down until the fall. Several of the major European football leagues could re-start already in Juni/July, likely without an audience, which will bring back the majority of the betting volumes. With a gradual improvement during 2020, we believe that the company could have revenue volumes back at normal by the end of 2020.
However, in the short-term, there is not much to look forward to as the Q1’20 report will be slightly affected by lower betting activity at the end of the quarter. Q2’20 will be nothing else than tragic, as we project with a massive drop of about 75% in sports betting revenues. We estimate that sports betting generated around 70% of the group's revenues pre corona. Increased casino and e-sport revenues will mitigate some of the lost sports betting revenues, as mentioned in our sector comment.
Nonetheless, the total revenues will still decrease, and we estimate with losses during the second quarter as the cost base will be more or less maintained, as illustarted in the table below. Moreover, due to the large uncertainty, we are making modest assumptions and don´t estimate with any of the major sports leagues to re-starting until August.
The main effect is in 2020, as illustarted in the table below. However, we estimate with some minor adverse long-term effects, as well.
In conclusion, Q2’20 will be rough as we expect a major decline in sports betting revenues due to the coronavirus outbreak. However, we expect that the effect will be short-termed and that 2021 and 2022 will offer significant growth opportunities with several major events, such as the FIFA World Cup, UEFA EURO, as well as both summer and winter Olympics. Furthermore, the acquisition of HLTV.org ApS is impressive, and the US market beyond Corona will offer a significant growth opportunity.
Better Collective also has a strong financial position with cash and un-utilized committed bank credit facilities of EUR 70m. The strong finances will enable the company to handle losses and seize M&A opportunities.
Due to the amended estimates, we have lowered Better Collective´s fair value. However, we still see a substantial upside to our base case, with a fair value range of SEK 50-185 (65-195) per share and a base case of SEK 105 (120) per share.
The acquisition of HLTV.org ApS
Better Collective announced, already, in its Q4’19 report that the company was in the final negotiation stages of acquiring a company within the e-sport vertical. The deal was closed at the beginning of March and did not offer any surprises compared to the already announced financial numbers. The acquisition of HLTV.org ApS enables Better Collective to start capitalizing on the rapidly growing e-sport vertical.
The leading site, HLTV.org, has substantial amounts of traffic. On average, the website has more than 26.5 million visits per month, according to Better Collective. According to Similarweb.com, the traffic is affected by a seasonality pattern, and the traffic is substantially higher during the peak season in the autumn, with above 35 million visits per month. This can be compared to the acquired US assets that have around 15 million visits per month.
The ARPU is more significant for US assets. Still, Better Collective has proven that it can capitalize on traffic volumes, and the e-sport vertical is driven by strong underlying growth. We also expect that Better Collective can bring additional operators and improve the commission.
HLTV.org ApS has reported strong growth during the last couple of years, as illustrated in the table below.
All in all, the acquisition offers strong underlying growth and massive traffic volumes that Better Collective can capitalize on. The e-sport vertical also offers significant long-term growth both when it comes to users and user values. Furthermore, we expect that that Better collective can improve the commissions.
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