Playmaker Capital Acquisition Will Expand Digital Sports Presence In South America

Key Takeaways

• Prioritizing organic growth and cost-efficiency could enhance long-term revenue, net margins, and shareholder value.
  
• Strategic acquisitions and esports expansion could drive future revenue, especially in South America and emerging markets.
  
• New regulations and market challenges in Brazil and the U.S. may hinder Better Collective's short-term revenue, with strategic shifts potentially limiting long-term growth.

Catalysts

Operates as a digital sports media company in Europe, North America, and internationally.

• Better Collective is focusing on organic growth, which is expected to boost long-term revenue and maintain financial agility, supporting future earnings.
  
• The company has implemented a cost-efficiency program, projecting €50 million in cost savings for 2025, likely to improve net margins and EBITDA.
  
• Recent strategic investments, such as the acquisition of Playmaker Capital, position Better Collective as a leading digital sports media group in South America, potentially driving future revenue in Brazil post-market stabilization in 2026.
  
• The expansion into esports shows significant growth, with esports revenue reaching over €20 million in 2024. This diversification is expected to contribute positively to revenue growth margins.
  
• Better Collective is prioritizing organic growth and share buybacks over M&A, which could improve earnings per share by reducing outstanding shares, thus increasing shareholder value.

Better Collective Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Better Collective's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 16.7% in 3 years time.
• Analysts expect earnings to reach €68.5 million (and earnings per share of €1.11) by about April 2028, up from €34.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €77.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, down from 18.7x today. This future PE is lower than the current PE for the SE Interactive Media and Services industry at 27.6x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.18%, as per the Simply Wall St company report.

Better Collective Future Earnings Per Share Growth

Risks

• The implementation of new online gaming regulations in Brazil, accompanied by a gross gaming tax and added costs on net gaming revenue, is expected to lead to a rebasing of the market, negatively impacting Better Collective's revenue and net earnings in the short term.
  
• The slower-than-expected activity in the U.S. market, particularly leading into the NFL season, due to decreased marketing actions from challenger brands, could contribute to flat growth in this significant market, affecting future revenue generation.
  
• Uncertainties in state launches and the absence of large events such as European soccer championships in 2025 could lead to subdued revenue growth in the U.S., resulting in potential stagnation or decline in earnings.
  
• Better Collective anticipates substantial player churn as Brazilian players reregister due to newly implemented regulations. This churn could lead to a significant decrease in revenue, impacting EBITDA and net margins during 2025.
  
• The strategic shift in capital allocation, focusing on organic growth and share buybacks over M&A, might limit opportunities for rapid expansion and revenue diversification, potentially affecting long-term earnings growth.

Valuation

• The analysts have a consensus price target of SEK159.972 for Better Collective 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 SEK220.74, and the most bearish reporting a price target of just SEK119.97.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €409.9 million, earnings will come to €68.5 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 7.2%.
• Given the current share price of SEK111.4, the analyst price target of SEK159.97 is 30.4% 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.