Better Collective: Solid outlook for 2024
Research Update
2024-02-23
07:45
Redeye updates on Better Collective following its Q4-results where the outcome was in line with the pre-announced numbers. As such, the focus in the report was the guidance for 2024, where the company’s revenue guidance implies solid growth of 19-29%. This was largely in line with our topline forecast, while the EBITDA-guidance suggests somewhat lower profitability than we expected. On the back of this, we have trimmed our 2024-25E estimates slightly while we leave our valuation range unchanged.
HA
AH
Hjalmar Ahlberg
Anton Hoof
Better Collective’s Q4-results were in line with the preliminary numbers which were pre-announced on 9 February following a strong year-end performance after a soft start to the quarter with a low sportswin margin in October. Comparing the outcome with our estimates ahead of the pre-announcement, revenue was c6% above our forecast while EBITDA was 24% ahead.
The main focus in Better Collective’s Q4-report was the guidance for 2024, where the company targets revenue of EUR390m-420m which was largely in line with our forecast. The EBITDA-range of EUR125m-135m was slightly lower than our estimate and implies a small margin decline compared to 2023. This comes on the back of continued impact from the ongoing transition to increased revenue-share income in US and a shift in revenue mix towards performance marketing for the recently acquired Playmaker Capital.
We have trimmed our EBITDA estimates by 3-4% for 2024-25E on the back of the company’s guidance set for 2024. Our valuation range remains unchanged where the base case stands at SEK400 and implies an EV/EBITDA of 18x 2024E and 16x 2025E. The share currently trades at 13x 2024E and the historical average NTM EV/EBITDA is c12x.
| EURm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 269.3 | 326.7 | 406.6 | 471.0 | 529.9 |
| Revenue Growth | 52.1% | 21.3% | 24.4% | 15.8% | 12.5% |
| EBITDA | 85.1 | 111.1 | 132.9 | 162.1 | 190.1 |
| EBIT | 70.4 | 82.8 | 84.2 | 112.3 | 139.7 |
| EBIT Margin | 26.2% | 25.4% | 20.7% | 23.8% | 26.4% |
| Net Income | 48.1 | 39.8 | 51.2 | 76.7 | 97.3 |
| EV/Sales | 3.6 | 5.2 | 4.3 | 3.5 | 2.8 |
| EV/EBITDA | 11.5 | 15.4 | 13.2 | 10.1 | 7.9 |
| EV/EBIT | 13.9 | 20.7 | 20.9 | 14.6 | 10.8 |
Better Collective reported revenue of EUR85.4m and EBITDA of EUR29.5m for Q4 2023, which is in line with the preliminary results announced 9 February. Comparing the outcome with our estimates ahead of the preannouncement, revenue was c6% above our forecast while EBITDA was 24% ahead. Looking at the development per region, which was not announced with the preliminary results, North America was lower than our estimate while Europe & RoW was stronger than expected. North America continues to be impacted by the transition to revenue share contracts. The company saw lower direct costs than expected while overall opex was as expected, albeit with lower staff costs and higher other costs. NDC intake was 483k which was up 9% sequentially but down 17% from Q4 last year which saw strong performance during the FIFA WC. Revenue-share contract mix for the NDCs was 80% which continues to build for growth of recurring revenue which was EUR47m (56% of total) in Q4 2023.
| Better Collective: results outcome | |||||||
| EURm | Q4 22 | Q1 23 | Q2 23 | Q3 23 | Q4 23E | Q4 23A | Diff, % |
| Revenue | 86.1 | 87.9 | 78.1 | 75.4 | 85.4 | 85.2 | -0.3% |
| OW North America | 35.1 | 37.1 | 22.9 | 22.5 | 34.4 | 27.1 | -21.3% |
| OW Europe & RoW | 51.0 | 50.8 | 55.2 | 52.9 | 51.0 | 58.1 | 13.9% |
| Direct costs | -26.8 | -27.1 | -22.0 | -25.7 | -25.6 | -24.4 | -4.7% |
| Gross profit | 59.4 | 60.8 | 56.1 | 49.8 | 59.8 | 60.8 | 1.6% |
| Staff costs | -17.9 | -21.2 | -21.4 | -23.4 | -24.1 | -22.9 | -4.9% |
| Other costs | -6.3 | -6.3 | -6.0 | -6.8 | -6.5 | -8.3 | 28.4% |
| EBITDA adj | 35.2 | 33.3 | 28.7 | 19.6 | 29.2 | 29.5 | 1.0% |
| EBIT | 32.4 | 28.1 | 20.7 | 11.5 | 22.6 | 20.6 | -8.8% |
| Net income | 20.3 | 20.9 | 8.3 | 3.1 | 14.7 | 7.5 | -49.0% |
| EPS reported | 0.35 | 0.36 | 0.14 | 0.05 | 0.25 | 0.14 | -44.9% |
| Source: Redeye Research |
As Better Collective’s Q4-results had already been pre-announced, the key focus in the company’s year-end report was the guidance for 2024. The guidance set for 2024 is for revenue in the range of EUR390m-420m with an EBITDA of EUR125m-135m, implying topline growth of 19-29% and EBITDA growth of 13-22%. While the topline range was in line with our forecast, the implied EBITDA-margin of 32% was slightly softer compared to our forecast (c34%) and also a lower margin than was achieved in 2023 (34%). The background for a slightly lower margin in 2024 than 2023 is partly due to continued investments in the company’s adtech platform where the first results potentially can be seen during the UEFA EURO 2024 in Q2/Q3. Furthermore, the acquisition of Playmaker Capital is expected to see flat performance during its first year as focus will be on shifting revenue mix towards performance marketing with upside looking into 2025-26E. Finally, the company continues to be impacted from the shift towards increased revenue-share income in US, with tough comps in Q1 2024 that are gradually easing towards H2 2024. On this topic, we highlight the solid progress that has been made in US this far, illustrated by the chart below which shows group total LTM mix of revenue-share NDCs and recurring revenue.
Better Collective: LTM Revenue mix Q1 2021 to Q4 2023E
Source: Redeye Research
We have adjusted our estimates on the back of the company’s guidance set for 2024. Our topline estimates are largely unchanged while we have slightly lowered EBITDA estimates with c3-4% for 2024-25E. We forecast total growth of 24% for 2024E, driven by the acquisition of Playmaker Capital and somewhat softer-than-usual organic growth of 9% owing to tough comps in H1 2024, due to the ongoing transition to revenue share in US. The table below summarizes key financials for 2022-26E.
| Better Collective: Financial forecasts | |||||||||
| EURm | 2022 | 2023E | Q1 24E | Q2 24E | Q3 24E | Q4 24E | 2024E | 2025E | 2026E |
| Revenue | 269 | 327 | 93.1 | 101.2 | 101.5 | 110.7 | 407 | 471 | 530 |
| Growth, % | 52% | 21% | 6% | 30% | 35% | 30% | 24% | 16% | 13% |
| Ow organic, % | 34% | 13% | -5% | 13% | 15% | 15% | 9% | 14% | 13% |
| North America | 99 | 110 | 32.2 | 32.7 | 38.1 | 41.4 | 144 | 174 | 195 |
| Europe & RoW | 171 | 217 | 60.9 | 68.5 | 63.4 | 69.3 | 262 | 297 | 335 |
| North America Y/Y (%) | 110% | 11% | -13% | 43% | 69% | 53% | 32% | 20% | 13% |
| Europe & RoW Y/Y (%) | 31% | 27% | 20% | 24% | 20% | 19% | 21% | 13% | 13% |
| Direct costs | -92 | -99 | -27.0 | -30.4 | -30.4 | -32.1 | -120 | -142 | -160 |
| Staff costs | -69 | -89 | -28.8 | -29.6 | -30.3 | -31.0 | -120 | -131 | -144 |
| Other costs | -23 | -27 | -8.5 | -8.5 | -8.5 | -8.5 | -34 | -35 | -36 |
| EBITDA adj | 85 | 111 | 28.8 | 32.8 | 32.3 | 39.1 | 133 | 162 | 190 |
| EBITDA adj (%) | 32% | 34% | 31% | 32% | 32% | 35% | 33% | 34% | 36% |
| Non-recurring | 0 | -2 | 0.0 | 0.0 | 0.0 | 0.0 | 0 | 0 | 0 |
| EBITDA | 85 | 109 | 28.8 | 32.8 | 32.3 | 39.1 | 133 | 162 | 190 |
| EBITDA (%) | 32% | 33% | 31% | 32% | 32% | 35% | 33% | 34% | 36% |
| EBIT | 70 | 81 | 17.5 | 20.4 | 19.8 | 26.6 | 84 | 112 | 140 |
| EBIT (%) | 26% | 25% | 19% | 20% | 20% | 24% | 21% | 24% | 26% |
| Net income adj. | 48 | 42 | 10.1 | 12.3 | 11.9 | 16.9 | 51 | 77 | 97 |
| Net income | 48 | 40 | 10.1 | 12.3 | 11.9 | 16.9 | 51 | 77 | 97 |
| EPS adj, EUR | 0.9 | 0.8 | 0.18 | 0.21 | 0.21 | 0.30 | 0.9 | 1.3 | 1.7 |
| EPS, EUR | 0.9 | 0.7 | 0.18 | 0.21 | 0.21 | 0.30 | 0.9 | 1.3 | 1.7 |
| Source: Redeye Research |
Our valuation range remains unchanged where the base case stands at SEK400 while the bull case is SEK540 and the bear case SEK210. Our base case and implies an EV/EBITDA of 18x 2024E and 16x 2025E. The share currently trades at 13x EV/EBITDA 2024E and the historical average NTM EV/EBITDA is c12x. The table below summarizes key assumptions for our valuation scenarios.
| Better Collective: Fair Value Range | |||
| SEK | Bear Case | Base Case | Bull Case |
| Value per share | 210 | 400 | 540 |
| Revenue CAGR 2025-2029 | 8% | 12% | 14% |
| Revenue CAGR 2030-2039 | 3% | 5% | 6% |
| Growth Terminal | 2% | 2% | 2% |
| EBITDA-margin 2025-2039 | 28% | 34% | 37% |
| EBITDA Terminal | 25% | 30% | 33% |
| Source: Redeye Research |
Case
Profitable growth supported by booming sports betting market in Americas
Evidence
Solid track record by owner operated management team
Challenge
High growth in US will drive increased competition
Valuation
Base case DCF driven by US growth – implies valuation in higher end of historic EV/EBITDA range
People: 4
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 over 2%, 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 above 60%, including Paid Media. 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 EBITDA margin of above 30% with strong cash flow.
Financials: 4
Better Collective is a very active and successful industry consolidator with several acquisitions carried through in the last years. While this can increase leverage in the short term the company’s strong cash generation means this quickly improves and opens for further growth by acquisitions.
| Income statement | |||||
| EURm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 269.3 | 326.7 | 406.6 | 471.0 | 529.9 |
| Cost of Revenue | 92.2 | 99.3 | 119.9 | 142.4 | 160.2 |
| Operating Expenses | 92.0 | 116.3 | 153.7 | 166.4 | 179.5 |
| EBITDA | 85.1 | 111.1 | 132.9 | 162.1 | 190.1 |
| Depreciation | 2.3 | 4.0 | 5.7 | 5.9 | 6.4 |
| Amortizations | 12.3 | 24.3 | 43.0 | 44.0 | 44.0 |
| EBIT | 70.4 | 82.8 | 84.2 | 112.3 | 139.7 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | 9.6 | 28.9 | 16.0 | 10.0 | 10.0 |
| Net Financial Items | -5.4 | -22.9 | -16.0 | -10.0 | -10.0 |
| EBT | 65.0 | 58.0 | 68.2 | 102.3 | 129.7 |
| Income Tax Expenses | 16.9 | 18.2 | 17.1 | 25.6 | 32.4 |
| Net Income | 48.1 | 39.8 | 51.2 | 76.7 | 97.3 |
| Balance sheet | |||||
| Assets | |||||
| Non-current assets | |||||
| EURm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Property, Plant and Equipment (Net) | 8.8 | 21.6 | 17.9 | 14.4 | 10.7 |
| Goodwill | 183.9 | 255.1 | 343.1 | 343.1 | 343.1 |
| Intangible Assets | 487.5 | 546.4 | 599.5 | 564.9 | 531.5 |
| Right-of-Use Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Other Non-Current Assets | 9.9 | 9.0 | 9.0 | 9.0 | 9.0 |
| Total Non-Current Assets | 690.2 | 832.1 | 969.5 | 931.4 | 894.3 |
| Current assets | |||||
| EURm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Inventories | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Accounts Receivable | 53.2 | 49.0 | 71.1 | 82.4 | 92.7 |
| Other Current Assets | 10.3 | 13.3 | 20.3 | 23.5 | 26.5 |
| Cash Equivalents | 31.5 | 43.6 | 97.6 | 214.0 | 349.9 |
| Total Current Assets | 95.0 | 105.8 | 189.0 | 320.0 | 469.1 |
| Total Assets | 785.2 | 937.9 | 1,158.6 | 1,251.4 | 1,363.4 |
| Equity and Liabilities | |||||
| Equity | |||||
| EURm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Shareholder's Equity | 412.9 | 435.3 | 600.9 | 677.6 | 774.8 |
| Non-current liabilities | |||||
| EURm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Long Term Debt | 201.7 | 248.7 | 298.7 | 298.7 | 298.7 |
| Long Term Lease Liabilities | 5.0 | 13.3 | 13.3 | 13.3 | 13.3 |
| Other Long Term Liabilities | 100.6 | 137.1 | 137.1 | 137.1 | 137.1 |
| Total Non-Current Liabilities | 307.2 | 399.1 | 449.1 | 449.1 | 449.1 |
| Current liabilities | |||||
| EURm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Short Term Debt | 1.1 | 0.00 | 0.00 | 0.00 | 0.00 |
| Short Term Lease Liabilities | 1.7 | 2.7 | 2.7 | 2.7 | 2.7 |
| Accounts Payable | 22.3 | 27.8 | 40.7 | 47.1 | 53.0 |
| Other Current Liabilities | 40.1 | 73.0 | 65.2 | 74.9 | 83.7 |
| Total Current Liabilities | 65.1 | 103.5 | 108.6 | 124.7 | 139.4 |
| Total Liabilities and Equity | 785.2 | 937.9 | 1,158.6 | 1,251.4 | 1,363.4 |
| Cash flow | |||||
| EURm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Operating Cash Flow | 48.2 | 89.0 | 75.8 | 128.2 | 149.1 |
| Investing Cash Flow | -112.6 | -106.2 | -186.2 | -11.8 | -13.2 |
| Financing Cash Flow | 65.7 | 29.3 | 164.4 | 0.00 | 0.00 |
Disclosures and disclaimers