Stock Pitch - BOTB (LON:BOTB)

1st Oct '20 by Jack Brumby

18 comments 5367 reads

Best Of The Best (LON:BOTB) was pitched to the Stockopedia Staff Investment Club (SIC) in early April. On the 8th of April shares were purchased at 400p.

This wasn't the first stock pitched at the Stockopedia Investment Club - but it has played the biggest role in the SIC's performance to date and so is worth revisiting.

What we saw back in April was a cash generative micro cap with shareholder management, double-digit historic earnings growth, high returns on capital, a strong balance sheet, and a clear catalyst in the form of its pivot to a pure online business model.

What we didn't expect was such a rapid and material rerating. Since April, BOTB's performance has prompted useful discussions in the Club around position sizing and whether to run your winners or rebalance.

Here's why I think we should continue to hold at 1,750p.

Profile/Category/Style

What is the company's name and ticker symbol and on what exchange does it trade?

This is BOTB, formerly Best of the Best. It trades as BOTB on the Aim Market.

In which sector & industry group does the company operate?

It's in the Consumer Cyclicals sector under Hotels & Entertainment Services. Though we don't think this classification accurately captures BOTB's operations or market opportunity.

What is the share price, market cap, size group, liquidity and risk of the stock?

BOTB has had a fantastic run so far in 2020, with shares up nearly 400% year-to-date. Today its share price is 1,750p and its market cap is £160m, making it a small cap.

It's a Speculative stock so share price volatility should be expected.

Liquidity might be an issue for some. The exchange market size (EMS) is 750, meaning you can invest just over £13,000 (750 * £17.50).

What is the opportunity style/type/classification?

Quantitative: This is a cut-and-dry High Flyer. It has a high Quality Rank and high Momentum Rank with low Value Rank.

A period of share price consolidation is dragging the Momentum Rank and StockRank down, meaning BOTB no longer qualifies for the Club's watchlist - but it did at the date of the original pitch and purchase, back in April.

Qualitative: Peter Lynch framework

BOTB qualifies as a Fast Grower, with earnings growth comfortably in excess…

Unlock with Email

Unlock with Google

Already have an account?
Login here

AnonymousUser1169618

1st Oct '20

I wouldnt touch this stock. I used to work for this company in sales. All I can say is alot of lying to customers and sales staff on commission only saying and doing what ever they can to earn a living because if they're not making money for the company they are thrown out very easily. Management know what happens, numbers look great but I'd stay well away

Andy Sav

Its worth noting that although the dividend % is small, they tend to pay out larger, more generous special dividends. It will be interesting to see if there is a further re-rating over the next 6 months :-)

portugull

I had the misfortune to sell my 3,500 shares in Best Of The Best (LON:BOTB) on 25th February thus missing out on a huge re rating a few weeks later.

I made a 32% gain on the share after reading Paul Scotts comments quite some time ago.

A great example of time in the market not trying to time the market!

dodge1664

I'm surprised it isn't already categorized as gambling.

Harry Hindsight

Masterclass. Not being an accountant brilliant to help understand the stocko algos.

Hold thanks to Paul 'head up' but getting bored - so a so called 'weak hand', but I prefer 'seeking other opportunities'. On basis of this will hold my impatience and maybe dip in if can get rid of my miners.

Phones4U were similarly good with bonus but you had to perform.

GrahamF

If the regulatory risk does happen this will be a blood bath as everyone tries to sell in a very illiquid stock.

Something similar could happen if one of the big gambling companies started a similar‘competition’, which could easily happen as there is nothing here that cannot be copied.

So, I feel that it is too much of a gamble. I know Paul and many others have done well from it but it could easily have been very different.

Nick Ray

Just a quick observation: Altman Z scores over 55 are one of the "watch out" signals I noted when I was looking to see if you could have too much of a good thing.

abtan

Hi Khalis2k

Sales staff? Commissions?
Can you elaborate please?

I thought the only "commissions" related to the referral programme.
And Best Of The Best (LON:BOTB) has sales staff? Marketing staff I can understand, but what are the sales staff doing?

Cheers

Zipmanpeter

2nd Oct '20

Best Of The Best (LON:BOTB) - I also bought and for once made good money from spotting that the pivot to online was succeeding. However that was from 250p to 630p/share. I sold because even at that valuation, I thought it vulnerable to attack by a bigger, better funded company.

I personally looked into setting up something similar andthe technology required looked relatively straightforward to replicate. The only moat (which effectively blocked me and the several very small competitors) is marketing investment to drive awareness/trial. The airport selling provided BOTB with that initial base they are now exploiting. But if one of the big gambling companies set their hat it with their already owned massive databases and basic internet and back office infrastructure, how hard would it be for them to take over in 2-3 years?

At 1750p/share, the current capitalisation is shown on stockopedia at £164Mn. This seems a lot to pay for the 'convenience' of a running start.

A few observations from my own analysis (as I hold):

The value of prizes given away in H1 (c£4m) is almost as much as all of FY20 combined (c£4.5m).
A lot of the prizes this year have been discretionary (eg an extra £50k cash prize included for free with every ticket),
ie the company is clearly growing revenues fast enough to justify a significant voluntary increase in costs.
Ticket prizes for the main competition are usually as high as £8, though I've noticed in recent weeks the most expensive tickets were c£3 and all tickets included +£50k cash. The company is clearly bullish if it can do both those things at the same time so late in the period.
In H1 FY20 11 out 26 Dream Car winners were international winners.
In H1 FY21 2 out of 21 Dream Car winners were international winners.
There are similar trends with the runners up that are published each week.
It's highly likely therefore that all the growth this year is coming from domestic ticket sales.

Why is this good?
To me it implies that there remains much scope for expansion into international markets.
Note that only 16% of revenue was derived from international sources last year.
With so much cash generation the dividend yield will rise, I don't think it makes sense to look at historical yields.
I think it's a good sign that a competitor starts something similar, because it shows that the model works. All it needs is for a competitor to do well, and then another to look to buy Best Of The Best (LON:BOTB) to play catch-up.
And as mentioned in 3. above, the international market seems relatively untapped - plenty of room for more players.

Fingers crossed.

Jack Brumby

Hi Nick,

I think I recall your post from a while back - it's an interesting statistical observation and worth bringing up.

Have just taken a quick look at Best Of The Best (LON:BOTB) 's Z-Score for anyone interested.

The first pass looks to be as a result of an increasing cash balance from the group's organic cash generation, from 66% of total assets in FY19 to 77% in FY20.

Check 2 - retained earnings as a % of total assets has also increased

Check 3 - EBIT as a % of total assets is up, due probably to more profitable top line growth from increasing online sales

Check 4 - market value to book value of total liabilities is strong as BOTB has not had any debt for at least the past five years, although the group has reported an increase in trade payables from £1.8m to £3m

I've looked at some historic StockReports and the Z-Score was lower 1 (19.9) and 2 (16.3) years ago. Is it too much of a good thing now? There are clearly some diverse opinions on this one which is good to see - DYOR as always

aflash

I am Not convinced. More important the writer does not seem convinced either, giving more reasons to sell than buy. Anyone who bought on line business shares in April has done well. The question is where will they go from here?

You owe it to yourselves to develop a checklist 'Is this stock a Sell?' instead of using your Buy template as you seem to have done.

Here is one of mine as an example:

Risks					answer
Public psychology
What is the market mood?
sideways	upwards	downwards
Is the sector in favour?			out of favour?
If so do you think it has further to go?			further to drop?

n/a	yes	no	indeed	maybe
Was your entry point opportunistic? Is it unlikely to return there?
What is the Present Price situation? Overbought? Oversold?
plus a synthesis of other opinions not that of any one guru.

Is the stock in favour?			out of favour?
Have you checked your target?
Brokers recommendations, consensus? contrarian indicator?
What is the percentage increase to future target?
Is it worth waiting?

Does the dividend cover your loss?
Does the share price still offer sufficient value to justify holding?

Can you watch your loss increase or your profit decrease?

Remember a share can overshoot up or down.
It will drop faster than it can rise & you may be depressed & sell
Remember it can dip then continue rising & you will wish you had held

If you sell, at what % increase in incremental value will you buy back?
Can you read about the stock without regret? Up or down?
If you sell what are the chances the stock will increase exponentially in value?
Could it be taken over?

What are other investors doing?
Has the stock become just too popular? Or unpopular?
Has the sector become just too popular? Or unpopular?
Prices do not move unless there is an order flow in that direction
After a substantial drop where will the loser quit, either on the bounce or on capitulation?
After a big rise where will there be supply?
Is it well known? Is there a reserve
of investors who do not own it now who are likely to buy it in the future?
If everyone is on board it is time to sell.

Are you selling for market timing reasons or fundamental ones?

Technical:
Specific danger signs:	angle of rise or fall too steep
	Outside Bollinger band		RSI
	falling volume and rising price
	muted reaction to good news, over-reaction to bad news
	gap down, falling knife
	Is there least resistance to the upside?






Fundamental	High p/e relative to peers,
	High debt, pension fund deficit
	Weak Balance sheet
	Price at premium to book
	Risky take over, risky business

What is the market cap? Entreprise value? Is liquidity good?
What is the cash flow? Is the dividend safe?
Are there freeholds?
Is the current ratio/debtor days good?

When is the next reporting date?
What are the chances of a profit warning?

Has the company delivered good or bad results recently?
Are the results are merely delayed? If not sell.
If you hold bad news may change the scenario

Do you know enough or have enough confidence in the prospects
to watch your profit turn into a loss?
Can the dividend be maintained?

What is your time horizon?
Why did you buy in the first place?

Is the stock a critical part of your strategy?
Does your view of economic developments include the sector?
If so are you ready to switch to what you think is a stock at a lower price with more potential?
Are you hoping to buy back at a lower price? A rights issue maybe?
Are you ready to buy back at a higher price if you are wrong?

What would Loeb do? (my Guru)
Market leaders only
Largest single factor market sentiment
Concentration on few shares
with capacity to double
Always write it down
Ever liquid account
Turn over odd lots

What would Soros do?
Concentrate huge amounts on sure bets

Quantative-financial impact effect on finances
Cash balances? What consequences?
Base your decision on your risk tolerance,
existing exposure
Will winning or losing make a significant difference to your Net Worth?
Will it make a significant difference to your Self Confidence?

underhill

https://www.ebaumsworld.com/jo...

Hi Aflash

I disagree with a lot of what you noted, simply because you've stated everything possible that anyone might think of when looking at a stock + a few things just baffled me (why should I follow your guru?)

I have 2 follow-up questions:

Do you own any stocks that conform to that humongous list?
Can you tell me - quantitatively - why Best Of The Best (LON:BOTB) is a sell now (as it appears that you think it is)?

It's a big holding for me, so if there is truly anything negative that I am missing - again, with an emphasis on the numbers - it would be great to understand more.

For reference, I track a bunch of metrics, including:

web traffic trends (I don't trust the numbers, but I think the trends have merit),
marketing spend (based on trends going back to 2017 and little snippets of information from company-published reports/updates),
players by geographical location (based on weekly information published on the BOTB website, and;
all COS, including reasonable estimate of RGD (my estimate was pretty much spot on for RGD in FY20, so fingers crossed I'll be pretty close for this year too).

As with everything, there's always a risk eg sales might collapse next year, so I understand why it might be a sell for some, but right now, with the information we have, everything seems to be going in the right direction.

abtan,

To start with your investment which is your concern, it is probable that you have a checklist of your own when pondering whether to Buy, Sell or Hold.

To continue with my checklist, it is an example as stated. A set of rules that I force myself to review when exhilaration or despair threaten to interfere with my thought process.

Everyone has their own method, adopted and adapted from their own sources and maybe Gurus. You have yours and your own investments. In no way do I want to influence them.

This new idea of a 'Stock Pitch' from a website that offers statistics is a step towards 'tips' and therefore questionable.

On BOTB (best of the best) I may or may not have an opinion. The only opinion I wish to express is on the methodology of the article as written.

Stuart Wilson1

I sold all my holdings at the start of this week. I also bought at 400, so a very nice profit to take. My logic is that this is a fantastic increase and we're about to see the start of a round of redundancies, US election theatrics, some Brexit dysfunction and that for the past few years Q4 always dips - and hence I'd like the cash on hand to go after some new bargains

Susan123

3rd Oct '20

We could do with more info on employees' roles but here is a helicopter view of numbers......admin 17!

Stock Pitch - BOTB (LON:BOTB)

Profile/Category/Style

Unlock the rest of this article with a 14 day trial

About the Author

Jack Brumby

18 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...