Market Expansion In Brazil And Paraguay Will Strengthen Future Position

Key Takeaways

• Expansion in regulated Latin American markets and enhanced B2B offerings diversify income streams and reduce concentration risk, potentially boosting earnings stability.
  
• Strategic investments and partnerships improve brand recognition, with a focus on locally regulated markets enhancing compliance and potentially improving net margins.
  
• Declining revenues in key regions coupled with increased competition and regulatory challenges are squeezing Betsson's profit margins and revenue stability.

Catalysts

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

• Expansion into newly regulated markets such as Brazil and Paraguay, alongside strengthened operations in existing markets like Argentina, offers significant growth potential, likely positively impacting future revenue streams.
  
• Broadened B2B offerings owing to acquisitions and enhanced sportsbook and casino products help diversify income streams and reduce concentration risk, potentially boosting earnings stability and scalability.
  
• Increased investment in marketing and staffing for future growth combined with strong cash flow and a robust balance sheet enables sustained reinvestment into scalable operations, enhancing future net margins and earnings.
  
• Strategic partnerships, such as with Racing Club in Argentina, and significant brand visibility efforts like those in the UEFA Champions League, aim to increase brand recognition, potentially driving higher revenue growth.
  
• Focus on locally regulated markets, comprising an increasing share of total revenue, suggests better compliance and potential tax efficiency, contributing to more predictable earnings and potentially improved net margins.

Betsson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Betsson's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.3% today to 20.4% in 3 years time.
• Analysts expect earnings to reach €296.1 million (and earnings per share of €1.97) by about May 2028, up from €188.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €265.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, down from 11.3x today. This future PE is lower than the current PE for the GB Hospitality industry at 14.2x.
• 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 6.36%, as per the Simply Wall St company report.

Betsson Future Earnings Per Share Growth

Risks

• Betsson's revenue from the Nordics decreased by 19%, driven by lower activity in both sportsbook and casino products, potentially impacting overall revenue growth in these traditionally strong markets.
  
• Despite new market entries, such as in Brazil and Paraguay, these entries did not yet contribute materially to revenue, which may delay the expected revenue boost from these markets.
  
• The increase in locally regulated market revenue results in higher gaming taxes, which have already started to impact the profit margins from 23.3% to 21.8%, potentially squeezing net margins further as this trend continues.
  
• Decreased revenues in markets like Georgia and Lithuania, mainly due to player-friendly results in sportsbook products, could affect the earnings stability and predictability.
  
• Betsson faces increased competition and regulatory challenges in several markets, which could impact customer acquisition costs and the effectiveness of marketing spend, affecting both revenue and net margins.

Valuation

• The analysts have a consensus price target of SEK178.333 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 SEK195.0, 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 €1.5 billion, earnings will come to €296.1 million, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of SEK169.7, the analyst price target of SEK178.33 is 4.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.