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BOTB prelims were slightly ahead of our forecasts, which we recently raised post the May trading statement. Trading continues to normalise despite the uncertain consumer outlook, driven by constant fine-tuning to changing market conditions. BOTB also declared a 6p/share (£0.565k) final dividend and a £6.275m return of capital via tender offer, equivalent to 66.7p/share; and 72.7p and £6.84m combined. We have increased our EPS (Dil. Adj.) forecasts by 23% to 53.9p from 43.9p for FY23E, and by 21% to 59.5p from 49.3p for FY24E, and we have also introduced a FY25E forecast. We have hiked our target price to 990p (was 810p), implying 144% upside, to reflect the upgrades. The stock has flatlined this year, but we expect a positive response to today’s news.
Best of the Best plc
BOTB’s H1 results were in line with expectations, but current trading has become tougher, with customer acquisition costs rising sharply in November and December. Early January is looking better, but the timespan is too short to call a recovery with any certainty. Consequently, we are cutting our EPS (Dil. Adj.) forecasts by 25% to 39.9p for FY22E, by 32% to 43.9p for FY23E and by 35% to 49.3p for FY24p as we conservatively assume little change to current trading. We are reducing our target price to 810p (was 1400p), which nevertheless implies 34% upside.
At BOTB’s prelims on 16 June, the remark that it had seen “somewhat of a reduction in customer engagement” since 12 April prompted a 40% decline in the share price as the market worried about this uncertainty. Today’s trading statement reveals that it had seen a 15% reduction in average weekly sales since the start of the new year compared with the last 15 weeks of the prior year. Like most other consumer companies, BOTB is discovering that consumer behaviour is proving harder to predict as the world re-opens, an exercise made tougher as the summer is seasonally quieter for BOTB with the betting companies being particularly active around the European Football Championships. We are cutting our EPS (Dil. Adj.) forecast by 63% to 53.3p from 142.7p for FY22E and by 61% to 64.1p from 165.2 for FY23E, assuming current trading levels persist for the rest of the year, and we are reducing our target price to 1400p (was 3100p).
The final results are in line with forecasts, confirming exceptional growth in the year. The group has also announced a second special dividend of 50p per share taking the total special dividend for the year to 90p per share.
The group has announced a broadening and strengthening of the board through two new appointments. We introduce an additional two years of forecast and raise our target price to £31.
The group has announced the Board’s decision to terminate the Strategic Options Review announced in June 2020 and to continue to focus on its existing online strategy, which continues to generate exceptional growth and strong cash flow. The statement also provides a trading update that confirms continuing strong trading through Q3. Our current year forecast PBT is upgraded by 79% from £7.8m to £14.0m.
Bango (BGO.L): Corp | BOTB (BOTB.L): Corp | Evgen Pharma (EVG.L): Corp | Lok'nStore (LOK): Corp | Open Orphan (ORPH.L): Corp | President Energy (PPC): Corp
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The final results revealed adjusted PBT up 99% year-on-year, which was 10% better than forecast despite four upgrades during the financial year. This strong performance reflects the financial benefits that have accrued following the shift in the business model to online only, as well as management’s strategic decision to significantly increase marketing spend. A second special dividend for the 2020 financial year has also been announced, reflecting the strong cash flow characteristics of the business model. Our 2021 profit forecast implies continuing momentum and a year-on-year increase in PBT of 86%. We raise our target price to 1050p.
Best of the Best (BOTB): Corp Positive trading update and profit upgrade | Crimson Tide (TIDE): Corp Improving client efficiency and compliance | genedrive (GDR): Corp £7m placing to fund COVID-19 tests | Independent Oil & Gas (IOG): Corp Keeping up a blistering pace
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Bango (BGO): Corp | Best of the Best (BOTB): Corp | Cambridge Cognition (COG): Corp | PCI Pal (PCIP): Corp | Shoe Zone (SHOE): Corp | Telit (TCM): Corp | Xeros (XSG): Corp
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Experiential leisure is a fast-developing sector, offering the potential for high future growth. Despite significant macro-economic uncertainty and weak consumer confidence over the past two years, numerous data sources (e.g. Visa’s UK Consumer Spending Index and Barclaycard monthly spending data) point to the relative resilience of low-ticket leisure spending, often highlighting it as perhaps the only consistent growth area of Consumer over the past 18-24 months. A number of sentiment surveys also show consumers prioritising ‘going out’ and other ‘experiential’ leisure activities, with consumers searching out experiences – rather than the ownership of goods – with their disposable income. In particular, we have noted a huge increase in activity-based social entertainment experiences. In this Quarterly report, we have assessed the five most promising emerging sub-sectors of experiential leisure (Urban mini-golf, Competitive socialising in bars/clubs, Escape rooms, Outdoor adventure, Virtual reality/Video gaming/eSports), outlined the key dynamics (both the opportunities and challenges) of each, and identified the up-and-coming specialist operators as well as the larger quoted leisure/retail operators making initial moves in these sub-sectors in locations across UK and even internationally.
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Best of the Best (BOTB): Corp Positive end to H1 FY20 confirmed with more profit upgrades | Castleton Technology (CTP): Corp Interims – mapping out a steady second half | LiDCO (LID): Corp China launch
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M&A is a clear theme for the UK Consumer sector: Aided by superabundant capital and low interest rates, the uptick in deal activity seen in May and June, compared to the first four months of 2019, continued into July and now early August. M&A has also broadened out across several Consumer sub-sectors (e.g. leisure, homewares, home improvement, pet care and beauty) having been more narrowly concentrated on the UK clothing retail sector and the UK pubs industry earlier in the year. Buyers have been a mixture of trade buyers and private equity operators. We also note the re-emergence of cross-border deals (e.g. Majestic Wine, Swallowfield, Focusrite, Portmeirion). Deal activity seems to be a response to many consumer companies already struggling to meet or exceed growth expectations, exacerbated by questions of how companies should navigate the new normal of a turbulent, disruptive world, and evolve their business models in response. There is no discernible unifying theme in the most recent deal activity, rather it is a mixture of: (1) achieving simplification and focus through demerger (e.g. Travis Perkins and the demerger of its Wickes DIY retailing business) and divestiture (e.g. Swallowfield); (2) scope M&A (e.g. Portmeirion, Focusrite, and boohoo Group) designed to accelerate top-line growth by adding attractive market segments, enhancing capabilities and opening up new markets; (3) scale M&A (e.g. Stonegate acquiring Ei Group) designed to achieve a lower cost position through benefits of scale (namely, cost synergies), building market power and other industry consolidation benefits; (4) establishing an initial foothold in interesting spaces (e.g. Pets at Home and Next); (5) bidders considering the long-term investment nature of the business as more suitable to the private market (e.g. easyHotel and Merlin Entertainment); and (6) forced sales process/capitulation due to financial distress/existential crisis (e.g. Bonmarché and MySale).
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Multiple unexpected surprises across the Consumer sector. We retain our unchanged overall view that “a highly challenging and uncomfortable period lies ahead for most of the consumer sub-sectors”, with uncertainty weighing heavily. What confounds us, however, is the nature and scope of the surprises, both positive and negative, that have characterised the past three months. In this edition, we highlight five significant ‘surprises’. (1) There have already been several probably industry-changing events in the first few months of 2019 that will likely define the global video games sector for the next 5-10 years. In short, we are on the cusp of a potential distribution revolution, with the emergence of a number of new distribution platforms from several tech giants (Google Stadia, Apple Arcade, and likely others) which could materially expand the audience for video games. This ‘more content in more ways' development is especially promising for content providers and technical partners/‘work-for-hire’/co-developers. (2) In UK grocery, there were high expectations that 2019 was shaping up to be the most important year for the UK grocery sector in possibly 20 years; however, 2019 has so far not proved to be such a pivotal year. (3) We had thought that the outlook had stabilised for FMCG operators, who had broadly navigated the turbulent backdrop over the past two years. Notable unexpected profit warnings from several small/mid cap FMCG operators reminded us this was not the case and the backdrop remains highly volatile. (4) We had assumed that corporate activity in the Consumer sector would continue to be dominated by the pub sub-sector. We were surprised therefore by some notable deal activity in the Retail and FMCG sub-sectors. (5) We had thought that the IPO market was shut for Consumer companies; however, one new listing (Loungers) and an Intention to Float (Watches of Switzerland) over the past month suggest an improved listing environment.
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Best of the Best (BOTB): Corp Strong pre-close; fourth positive profit surprise in a year | Morses Club (MCL): Corp CFO to retire | Morses Club (MCL): Corp Strong results, healthy pipeline
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Best of the Best (BOTB): Corp Strong H1 = Yet another positive profit surprise | Solid State (SOLI): Corp Positive trading update – 26% EPS upgrade | STM (STM): Corp Building blocks firmly in place after governance upgrade
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Best of the Best (BOTB): Corp BOTB delivers another positive profit surprise | InnovaDerma (IDP): Corp AGM & trading update | Savannah Resources (SAV): Corp Exploration update – Portugal
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Assessing the Consumer sector’s exposure to a ‘no-deal’ Brexit. With Donald Tusk, the President of the European Council, warning this week that a ‘no-deal’ Brexit “is more likely than ever before”, we have assessed the listed Consumer sector’s exposure to a ‘no-deal’ Brexit scenario and the risks attached. As very few companies have published a detailed analysis of the challenges that Brexit represents (and their mitigation plans), we have looked at the number of references to “Brexit/EU Referendum” in recent UK earnings reports. The main five areas of risk identified are (1) Economic uncertainty including a weakened £; (2) Consumer confidence/spending; (3) Input/raw material cost volatility; (4) Workforce recruitment/retention; and (5) International trade. What is less clear is the extent to which comprehensive preparation has been made to ensure companies continue to run smoothly – deal or no deal. We conclude therefore that either UK small/mid cap Consumer sector plc feels prepared, or perhaps companies have run out of things to say amidst the deep uncertainty.
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With these better-than-expected FY18 results (PBT £1.6m vs fC est of £1.4m), BoTB has clarified its strategic decision to become solely a pure-play online operator, completing its move away from its legacy physical retail locations. This is a significant moment for the BoTB investment case. We view this decision as a sign that BoTB is unequivocally entering into a distinctive new phase of growth which, in turn, should have important positive long-term implications for sentiment, forecasts and valuation. Another special dividend (4.5p) is announced, thereby continuing BoTB’s recurring but not formalised programme of special capital returns, and attesting to BoTB’s strong cash generation.
Best of the Best (BOTB): Corp Highly encouraging pre-close FY18 trading statement | LiDCO (LID): Corp HUPdate | OptiBiotix (OPTI): Corp Building the foundations for global LP-LDL probiotics
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Block Energy—a NEX Listed UK based oil exploration and production company whose main country of operation is the Republic of Georgia, looks to join AIM end of February 2018. Offer TBC OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Offer raising £30m at 165p with mkt cap of £100m . Due 9 Feb.
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BOTB has announced a change to its tax regime, such that the company now expects to pay Remote Gaming Duty (RGD). As such, we update our forecasts accordingly – EBITDA reduces by £0.3m to £1.5m in FY18E and by £0.6m to £1.3m in FY19E. Despite this unfortunate news, we stress that trading should continue as normal (existing underlying forecasts are essentially unchanged) and BOTB should remain a profitable and cash-generative business. Indeed, the short-term position could improve thanks to an unconcluded VAT claim for £4.5m (gross of expenses).
We examine wet-led and food-led capacity across the regions and conclude that excess capacity remains in the food-led segment (although Central, Welsh and Yorkshire regions lag the national average). Despite recent profit warnings, an increasing divergence in reported performance between pubs and restaurants, and a recent reduction in eating out frequency and spend, existing food-led operators remain too focused, in our view, on trimming estate tails and slowing rollout rather than substantial capacity reduction – and combined with smaller PE-backed concepts scaling up and landlord pragmatism, net new capacity continues to enter the market. Given the severe cost and competitive pressures, as well as downside macro risks, we foresee more pain across the sector – in the near term expect aggressive menu price discounting to continue, leading subsequently to margin pressure and forecasting risk for listed operators and financing risk for smaller, highly leveraged private operators. While rightsizing will happen (it did with pubs), the process may be protracted. We run the finnCap Slide Rule over the casual dining space, with our preferred pick (BUY, 19p PT) scoring highest on QVGM metrics. While not immune to sector woes, lacks an estate tail, should be a beneficiary of trading down, and has a number of self-help levers, as well as a management team that has seen the movie (many times) before.
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While the decline in pub numbers over the past decade has often been attributed to the smoking ban, a rebalancing of demand from drink-led to food-led occasions and an uneven playing field between pubs and supermarkets on beer duty and business rates, we think that pubs also need to shoulder some responsibility, having largely failed to keep pace with changing trends, in particular lacking concepts that appeal to Generation Z consumers and Millennials. In this report, we discuss the characteristics of ‘Gen Z’ and Millennials (socially conservative, fiscally cautious, digitally native); what they like doing (lots in social isolation, far less in pubs and clubs); and how to tempt them back into pubs (create an ‘Instagram-able aesthetic’, offer free wi-fi and more technology, widen the wet offering and embrace non-drinkers, offer pop-up ‘immersive activities’ and employ retro with special offers that cater for groups rather than ‘couply’ stuff). Generating a strong social media presence (not just Facebook but also Instagram, Snapchat and Twitter) allows operators to be with their customers well after closing time and encourages customers to do their marketing for them.
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Adj. PBT of £1.5m is 7% ahead of our upgraded expectation and shows 43% y-o-y growth, driven principally through a meaningful improvement in both gross and operating margins. Cash generation meanwhile continued to be very strong with FCF/adj. PAT >100% for the fourth consecutive year. This meant a year-end cash position of £2.1m, of which £0.8m will be distributed to shareholders through an ordinary and special dividend of 1.4p and 6.5p respectively. We upgrade FY18E adj. PBT by 6% (suggesting 8% y-o-y growth) – conservative assumptions we believe, considering that BOTB plans to increase its marketing spend by c.70% to £2m, which if used as effectively as previous years, provides upside risk.
Best of the Best* (BOTB): Prelims comfortably ahead, 6.5p special div (CORP) | Sopheon* (SPE): Positive AGM statement (CORP) | SCISYS* (SSY): Very positive AGM trading update (CORP)
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A good set of interims disclose a near doubling of 1H17 adj. PBT to £0.9m, with results also ahead of upgraded expectations, following November’s interim trading update. Key metrics such as online sales growth, profit margin, and FCF all continued their upward trend and with 66% of unchanged FY17E PBT already delivered in H1, BOTB is well positioned to continue growing and meet our full-year numbers. We upgrade our target price to 338p, based on a target FCF yield of 4%.
Looking at the top 50 non-listed casual dining and bar operators, it appears that the £80bn market for eating and drinking out in the UK is alive and well. The AlixPartners Growth Company Index (October 2016) shows that 2-year profit CAGR has improved over the last few years, and recent surveys from Greene King, Coffer Peach and Deloitte highlight elevated spend on out-of-home occasions. We attribute this to 1) a shift amongst consumers from an ownership to experience-led mentality which has driven habitual spend on leisure 2) an increasing focus on food from historically wet-led operators as they diversify their revenue streams to mitigate competition from the off-trade and match consumer gravitation towards eating out and convenience; 3) increasing regional penetration resulting from oversupply and high rental costs in London and 4) strong sector support from Private Equity investors, attracted to the Leisure sector's cash flow profile which can be leveraged against. Nevertheless, we may look back on 2016 as the peak for casual dining and bar operator profitability, particularly for London-weighted operators who face unfavourable rent and rate costs as well as potential loss of cheap migrant/seasonal labour. Past performance is certainly not a guide to future performance.
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Best of the Best* (BOTB): Revving up (CORP) | Berkeley Energia (BKY): Fund raise (U/R) | H&T (HAT): It’s not really about gold (BUY)
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Best of the Best (BOTB) operates competitions to win luxury cars and other prizes, both online and at retail locations. Limited competition, barriers to entry and BOTB’s focus on cars have helped the company become the market leader in the UK. We expect these factors to remain relevant as BOTB continue grow online (FY16: +41% y/y growth) beyond the £7.1m, which online sales currently represent. This growth and shift to online is significant, as it increases BOTB’s ability to scale, benefits the profit margin and furthermore improves revenue predictability. To date, online growth has been marketing-led and, demonstrating their confidence, management are exploring new, more ambitious channels to address a wider audience. We therefore expect EBITDA growth to accelerate over the next two years (14% CAGR) and believe +10% y/y growth is achievable over the longer term.
Dividend income typically comprises a substantial proportion of the total long-term return from equities. This will especially be the case at a time of low interest rates and low inflation/growth. A segmental analysis for 2013- 2016 shows that the further you go down the market-cap scale the more robust dividend growth, especially in the coming year. While there is the potential for short-term performance from “renting” some of the high yielders in the FTSE 100, overall there is better value to be had from a portfolio of good-quality smaller growth companies, some of which are also capable of delivering special dividends.
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Today's pleasing H1 FY16 results prompt us to raise our FY16-FY18E PBT by c10%. These results remind us of the multiple investment attractions on offer, namely; (1) an unrivalled customer proposition, based on a different weekly game offering the chance for consumers to win the dream car of their choice at a range of price points, supported by a robust operational model; (2) a company well positioned to accelerate its already strong sales growth (H1 FY16 +30%, an acceleration from FY15 +25.7%) through ongoing online shift, continued product innovation, multiple test & refine marketing initiatives, and by expanding its international reach; (3) a strong, cash-generative, self-funded financial model; (4) a reasonable dividend yield supported by a progressive dividend policy (with the scope over the medium term for further special dividends); and (5) a strong balance sheet underpinned by a healthy cash position (currently >£2.5m). The shares have performed very strongly since late April 2015, surpassing our 155p TP. However, the powerful momentum seems set to continue for the rest of FY16 and beyond, which gives us the confidence to reiterate our Buy and raise our TP to 220p, giving c26% upside potential.
We’ve all been there. Hurtling through the airport at the speed of light trying to make our flight when we are suddenly greeted with the alluring grace of Porsche’s newest supercar and a chance to win it for a nominal fee to enter into a prize draw. Over the past sixteen years BOTB has evolved substantially from operating on a single airport site into a multi-channel business that displays luxury cars as competition prizes in rented retail space whether it be in airport terminals, shopping centres or their rapidly growing online offering. The company receives over 10,000 weekly entrants whereby players can choose the exact car they want to win from over 190 models with entry prices ranging from £3-£20. Models are all encompassing from supercars, luxury SUVs/4x4s, classics, track cars, sports cars and hybrid/electric cars.
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