Redeye comments on Better Collective’s Q2-results which came in stronger than expected with solid performance in all segments. The company also saw a strong start to Q3 while it reiterates its recently increased financial targets for 2023.

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Better Collective

* Operates in a fragmented market with numerous competitors, potentially limiting market dominance.
* Indirect exposure to regulatory risks through customers in the gambling industry.
* Dependence on key individuals (CEO and COO) for continued success.
* Products do not significantly contribute to the greater good, primarily serving recreational purposes.
* Potential ethical concerns associated with the sports betting industry.

* Strong recurring revenue base (60%) with potential for growth, enhancing business stability and predictability.
* Successful geographic expansion from Nordics to Europe, North America and South America, demonstrating adaptability and growth potential.
* High ROIC and operating leverage, with strong margins and efficient capital allocation.
* Robust competitive advantage through strong assets and scale, likely to improve over time.
* Diversified revenue base and limited correlation with economic cycles, providing operational stability.

* Lack of consistent operating margin growth over three consecutive years, potentially indicating challenges in cost management or operational efficiency.
* Return on Equity (ROE) and Return on Assets (ROA) performance below desired thresholds, but this is partly explained by acquisitions.
* Absence of dividend payments, limiting appeal for income-focused investors. However, given M&A potential, we believe it makes sense to allocate capital to acquisitions rather than dividends.

* Strong profitability with gross profit margin exceeding 40% and operating margin above 20%, indicating pricing power and competitive advantage.
* Consistent revenue growth outperforming industry average over the last five years, signaling market share gains and competitive strength.
* Solid financial health with current assets 1.5 times greater than current liabilities, low debt levels, and strong interest coverage.
* Excellent earnings quality demonstrated by efficient inventory management, effective accounts receivable collection, and high operating and free cash flow conversion rates.

* Lack of dividend payouts, as all profits are reinvested in the business, which may not appeal to income-focused investors.
* Limited board ownership, with only three of eight board members holding sizeable personal stakes, potentially reducing alignment with shareholder interests.
* Limited female representation in leadership, with the company still working towards its target of 35% female employees (currently at 31%).

* Strong founder-led leadership with CEO Jesper Sögard demonstrating visionary thinking, industry expertise, and a commitment to long-term value creation.
* Decentralized organization with a lean structure, promoting accountability and adaptability, supported by consistent delivery on promises and strategic goals.
* Effective capital allocation, including well-timed acquisitions and share issuances, with a focus on generating attractive returns on investments.
* Transparent and timely investor communication, with management being candid about challenges and maintaining consistent long-term objectives.
* Significant insider ownership, with CEO and COO holding approximately 34% of shares, aligning management interests with shareholders.