Ever heard of Webis (WEB.L)? This interesting creature showed USD $276 million of turnover in 2014, a small profit of $500k, and had net current asset value of $3.8 million. How should such a company be valued? The current offer at 1p (beware the spread) values it at around $6 million. Strip away the net current assets and you seem to be buying a mammoth pile of revenues for an exceptionally small price at this level! However, all is not quite as it seems.
Webis is operating in the licensed horse and greyhound betting sector, primarily in the US (hence the USD-denominated accounts). Besides a racetrack it operates in Sacramento, California, its primary operation is a wagering hub under the name Watch and Wager (WAW). Take a look at their offering at watchandwager.com and read a favourable review at usonlinebetting.com/watch-and-wager/. It offers tote/pari-mutuel betting, not fixed-odds, which takes much of the work and the risk out of the hands of the operator. This is also one of the reasons the price to sales ratio is so low: the fraction of bets made which Webis takes in gross profits will always be slim.
To understand the sector, it would be worth examining Betfred's purchase of British Tote from the UK government in 2011. Accounts show that the Tote had revenues of £2.9 billion in 2011. The purchase price was £265 million. If it was true that every pool betting operator was similarly worth 9% of revenues, then Webis' WAW segment should be worth about $11 million, or a very significant premium to the current market cap! But the comparison is not a fair one and perhaps that figure should be considered the absolute maximum which WAW is worth at its current scale.
Which brings me to some important background information: Webis is not the company it was before and those $276 million of revenues are not going to be repeated, since $157 million of them are attributable to a fixed-odds segment which Webis is currently shutting down as a consequence of regulatory problems in Asia, at an estimated cost of $0.3 million. Still, the WAW segment which remains is worth about $120m of revenue per year, and is in a regulatory environment which it is successfully navigating.
Potential investors should be aware that this is a Mellon company, with Jim Mellon holding 68%…
I own some - not buying or selling - speculative hold !
