Expansion Into Brazil And Bet Builder Development Will Strengthen Future Market Position

Key Takeaways

• Geographic expansion in Latin America and CEECA may significantly boost revenue and market share through strategic investments and sponsorships.
  
• Proprietary technology platform and strategic investments enhance user engagement, supporting revenue growth and improving customer retention.
  
• Strategic market withdrawals, increased competitive pressures, and higher costs could impact Betsson's profitability, challenging revenue growth and operating margins.

Catalysts

Through its subsidiaries, invests in and manages online gaming business primarily in the Nordic countries, Latin America, Western Europe, Central and Eastern Europe, Central Asia, and internationally.

• Betsson is preparing for geographic expansion, including a launch in the newly regulated market in Brazil, which could significantly boost its future revenue and market share in the Latin American region.
  
• Continued high activity and investment in the Latin America and CEECA regions are driving growth, potentially leading to increased revenue and improved earnings from these strategically important areas.
  
• Betsson's proprietary technology platform and sportsbook, including the development of features like Bet Builder, enhance user experience and engagement, potentially bolstering revenue through increased customer retention and activity.
  
• Strategic sponsorships, such as the extended jersey sponsorship with Boca Juniors in Argentina, enhance brand recognition and market presence, supporting revenue growth and enhancing net margins through brand-driven customer acquisition.
  
• Betsson has a strong balance sheet and cash flow, which supports its ability to invest in growth opportunities such as acquisitions and technology development, potentially increasing both revenue and earnings over the coming years.

Betsson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Betsson's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.4% today to 19.9% in 3 years time.
• Analysts expect earnings to reach €278.5 million (and earnings per share of €1.98) by about April 2028, up from €181.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.4x on those 2028 earnings, down from 10.2x today. This future PE is lower than the current PE for the GB Hospitality industry at 11.4x.
• Analysts expect the number of shares outstanding to grow by 0.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.27%, as per the Simply Wall St company report.

Betsson Future Earnings Per Share Growth

Risks

• The decision to withdraw from certain markets, like Norway, could have a financial impact due to the loss of revenue from these markets, even if the company aims to mitigate this impact by leveraging diversification (impact on revenue).
  
• The highly competitive landscape in new and existing markets, such as Brazil, poses a risk of increased marketing costs without guaranteed returns, potentially affecting profit margins and operating income (impact on net margins and operating income).
  
• The increased costs in marketing and personnel, partly due to strategic investments in expansion and technology, may exert pressure on the company's profitability if not matched by proportional revenue gains (impact on net margins and earnings).
  
• The higher corporate tax rate due to the application of the Pillar 2 rules has already limited the growth in net income and earnings per share, a factor that might continue affecting the company’s bottom line (impact on net income and earnings per share).
  
• The structural growth in sportsbook margin is questioned, as a significantly higher margin may not be sustainable if it compromises customer experience and competitive pricing, thereby risking potential loss of market share over time (impact on revenue and future profits).

Valuation

• The analysts have a consensus price target of SEK173.333 for Betsson based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK190.0, and the most bearish reporting a price target of just SEK150.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €278.5 million, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 6.3%.
• Given the current share price of SEK146.8, the analyst price target of SEK173.33 is 15.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.