Best of the Best (BOTB)

19th Jun '20 by abtan

6 comments 1345 reads

There has been a lot of discussion recently regarding Best Of The Best (LON:BOTB) (which I hold), so I thought it might be useful for interested parties if I carry on the discussion here.

Below I've worked through cost and revenue assumptions, and included my own personal forecasts.

I would be interested to hear from others who hold or have an opinion on either my workings or the future of the company in general.

COST ASSUMPTIONS

Fortunately there are only 4 main costs and these can all be reasonably estimated.

I expect the Value of Prizes (COS-1) to increase by 40% in FY21.
I have worked this out based on:
a) the average weekly value of the new Midweek prize (£39k so far), and
b) the average weekly value of the Dream Car + Lifestyle prizes (c.£90k since April 2019).

(NB: I know that the company generally does not receive discounts on car prizes.)
Remote Gambling Duty (COS-2) is relatively easy to estimate, though I believe it can't be worked out exactly as one needs to factor in free bonus credits plays, information which we don't have.

NB: I keep a running total of prize values, so my FY20 total COS figure was pretty accurate; I assume my COS forecasts below for FY21 and FY22 are therefore reasonable estimates.
I've been tracking Marketing costs since the last time these were announced back in FY17, and have assumed the 50% year-on-year increase this year continues for at least a couple of years.
Salaries seem (unusually) constant at the moment.

FORECASTING REVENUES FY21 AND FY22 - Version 1

FY21 revenue growth of 55% (as guided by finncap)
FY22 revenue growth of 30% (as guided by me)

Factoring all the above, FY21 and FY22 will generate PBT of £7.9m and £13.0m respectively.

VALUATION

I look at Best Of The Best (LON:BOTB) as a gambling company and therefore value it accordingly, with a slight caveat.

Online-only gambling companies that have been taken over in recent years have generally been valued at *10-12 EBITDA (I can't find out where I read this, but I keep this note with 888 Holdings (LON:888) , which I hold)

Given the highly leveraged operations and high growth rate of Best…

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dustyie

19th Jun '20

Yes I would agree with you on the above post, but it potential for growth is huge , far greater than the numbers above
I get the impression that BOTB was very poor in its online marketing , It only in the last twelve months I see them advertising online . Marketing and branding is key to this business and is there only chance in creating a moat for this business . I'm surprise that there is no big name celebrities promoting these competitions ,(I thinking of ex racing drivers to Topgear personalities etc ) ,
perhaps they were afraid of drawing too much attention , and end up being regulated/taxed out of business
It has a proven business model and it should be put to work at it maximum in overseas markets , europe, asian , and americas, in five years time what will the numbers be ? 100 million + turnover and still growing fast.

abtan

27th Jul '20

For anyone who still owns Best Of The Best (LON:BOTB) I thought it would be worthwhile to share a recent observation.

AVERAGE PRIZE VALUE

I track the value of the weekly prizes in order to ascertain what the company's gross profit might look like on an on-going basis.

The average value of the weekly Dream Car prize is as follows:

FY20 = c£80k
YTD FY21 = £101k

So, costs of prizes are tracking about 26% higher than last year.

Then of course there are additional prizes for the Mid-Week competition that were not included last year (average FY21 YTD = £47k)

The above concerned me a lot, and I was considering selling out of my position, as even with the +55% revenue growth forecast, it didn't look like earnings growth would justify the current very lofty valuation.

TODAY'S ANNOUNCEMENT

Today the company has announced it's ad hoc Super Car competition, worth at least £132k (up to £180k)

The company occasionally runs this special competition (usually around period end, presumably to push a chunk of costs into a favourable period, something that they can't usually do) but for the avoidance of doubt, this competition was not run at this time last year.

I can't imagine the company would have offered such a large prize unless things were going well.

I could of course be wrong, or subconsciously biased, but on the surface it appears to be a re-assuring sign.

steve gray

24th Aug '20

Hi Abtan

Good analysis. I am also long on BOTB.

The pic shows google search data over the last 12 months which is a good proxy for website traffic and sales (assuming conversion from visits to sales is broadly constant). Growth is 5X where it was a year ago.

William K

The Best Of The Best (LON:BOTB) spread of 1140 bps is enough to discourage me.

15th Sep '20

Hi Steve

Sorry, I've only just noticed this reply.

Best Of The Best (LON:BOTB) is due to update tomorrow morning, so this reply is probably a little late.

In any case I thought it would be interesting to point out that the current year Cost of Sales (COS) are tracking +100% vs last year i.e much higher than the +40% I predicted.

i.e2 - COS for H1 FY21 already look like they are greater than all of FY20.

I was actually quite worried about this, but 2 things have re-assured me:

The company has added an additional £50k bonus cash offer for every dream car ticket this week. If things were going badly, they would not be upping their prize value so late in the period (H1 is May-October).
Similarweb average traffic for the first 4 months of this financial year (May-August) is up +90% vs 2 months of lock down (March-April). Of course this doesn't necessarily mean a +90% increase in sales, but one would hope it provides a cushion to the +55% revenue growth forecast provided by the company for FY21.

Fingers crossed.

24th Feb '21

I posted the below on the SCVR today, but in case anyone missed it (and so I have everything in 1 place in case I want to revisit) I am posting again here for completeness,

https://www.stockopedia.com/co...

The biggest worry I see with Best Of The Best (LON:BOTB) is not regulation or competition, but the directors themselves. With so much control they can do anything they want, including delisting, and I do question why they continue to "take care of us" when they don't really need to. Last time I checked they would only need c.£60m to buy the shares they don't own.

Moving on...

INTERNATIONAL EXPANSION

For background, International Sales amounted to 16% of group revenue in FY20.

I actually go through the laborious task of tracking the winners and runners up each week so have a rough idea of where winners/runners up are based (UK or International) and how much is given away.

Whilst the below is not 100% accurate, it definitely implies that the growth this year is still coming from the UK.

Just to be clear, it shows that in the main Dream Car competition last year 28.3% of winners were based abroad and that figure is closer to 11.9% so far this year.

Whilst I would prefer the company to start looking to expand internationally it's good to know that the opportunity is still there.

FORECASTING

One of the advantages of tracking weekly prizes (which is 1 half of COS) is that it should be fairly simple to fill in all the other gaps and estimate:

Revenue & RGD (the other side of COS) as we know gross margins will be greater than 60% and probably closer to the 63% achieved in H1, and RGD is a calculation determined from revenue and prize giveaways;
Marketing, a balancing item in OPEX, and which seems to be increasing in line with revenue.
(Note that total salaries - the other major component of OPEX was £2m and doesn't seem to increase by much each year.)

We know that the average weekly giveaways currently total c£117k and even a range either side of this shouldn't make a difference to forecasting for the last 2 months of the year, or indeed going forward with the current 3 competitions.

Note that this week all prizes include +£50k or +£20k depending on the competition - I like seeing this closer to the period end (Year End is April 30th) as it implies that the company is tracking ahead of its gross margin targets and wants to give bigger prizes away.

Putting that all together and assuming

30% YOY revenue growth for the next 2 years
Gross Margins rising to 66%
Marketing/Rev% remaining close to 27%

gives me an FY23 Profit After Tax of £23.6m.

The current EV is currently £230m, so even on a tepid 30% growth trajectory (vs what looks like at least c.160% growth this year) the shares do look undervalued.

In fact, when I look a the Finncap estimates published today, I don't quite understand them as they are implying FY21 gross margins of 60%, which doesn't really look correct compared with the 63% achieved in H1.

Either gross margins are expected to fall, or Finncap are underestimating revenues - I personally think the latter.

FINNCAP

For reference this is what my forecast looks like with 100% growth for the next 2 financial years, I am aware this is ridiculous and highly unlikely.

Best of the Best (BOTB)

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Abtan

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