Super Group Stock Reeling After EBITDA Adjustment, Analyst Downgrade

The last 10 days or so have been anything but super for Super Group.

Executives from Super Group celebrate after ringing the New York Stock Exchange bell to start trading on Jan. 28, the first day the gaming company could offer shares on NYSE. The company’s stock was recently downgraded by Oppenheimer after executives reduced its forecast adjusted EBITDA earnings for the year. (Image: NYSE/YouTube)

The Guernsey-based gaming holdings company owns Betway, a global sportsbook that partners with more than 60 sports teams and leagues. It also controls Spin, which offers real-money iGaming worldwide.

On Aug. 10, Super Group ended the day with its shares trading at $5.66. It had mounted a modest rally just a couple of weeks before when its shares were trading for under $4.

But since then, company executives have announced a massive drop in adjusted EBITDA, and one stock analyst has downgraded Super Group’s stock.

That led to a steady slide in the stock over the last four days of trading. Shares ended Friday going for $4.16, a 26.5% drop from the Aug. 10 close.

Super Group started trading on the New York Stock Exchange on Jan. 28, just two days after finalizing a merger with Sports Entertainment Acquisition Corp., a special purpose acquisition company. Its peak closing price was $11.05 on April 13.

Blame Canada

During Super Group’s Aug. 11 quarterly earnings call with analysts, CFO Alinda Van Wyk told analysts the adjusted EBITDA dropped to between €200 million (US$200.8 million) to €215 million (US$215.9 million). That was down from the €345 million (US$346.4 million) Super Group announced earlier this year.

The low end of the new forecast represents a 42% decline in expected earnings before interest, taxes, depreciation, and amortization (EBITDA).

The company’s presentation noted a €153 million (US$153.6 million) drop in net gaming and agency revenues. That’s along with a €32 million (US$32.1 million) decrease in license revenue and a €22 million (US$22.1 million) increase in operating costs. The latter was due to the current economic climate.

Van Wyk told analysts that gaming revenues went from an even split between Betway and Spin in the second quarter of 2021, to 55% coming from Betway in the second quarter of 2022.

The shift in revenue mix negatively impacts our EBITDA margin, owing to Betway’s lower operating margin as compared to Spin,” Van Wyk said.

In the last quarter, Super Group saw Spin’s revenue drop by €29 million. Most of that took place in Canada, with Van Wyk pointed to two reasons for that.

“People are getting back to normal behavior, post-COVID, and inflation is putting pressure on spending,” Van Wyk said. “Similar factors can be seen in several of our markets across the globe. But the impact is felt most in Canada, as that is our largest market.”

Oppenheimer Analyst Concerned

Last week, Seeking Alpha reported that Oppenheimer analyst Jed Kelly downgraded Super Group’s stock, namely on the news about Canada.

“We are incrementally concerned around Canada, where 2Q North American revenue (-18%) and data indicate well capitalized players are rapidly gaining share in Ontario,” Kelly told Oppenheimer clients, according to Seeking Alpha. “We would get more constructive on revenue acceleration from re-entering more European markets following new regulations, or better visibility into Canada.”

Kelly downgraded the Super Group stock to “perform,” similar to a hold or neutral rating.

DGC Deal Still on Track

Super Group CEO Neal Menashe told analysts that the company continues to make progress on its acquisition of Digital Gaming Corp. (DGC), which owns the rights to license Betway in the US.

The goal is to complete the acquisition by the year’s end. DGC has Betway licensed in seven states and has market access deals in place in five more. Last week, DGC submitted its application to offer online sports betting in Ohio.

“DGC will be a tremendous addition to Super Group and the fastest and most efficient way for us to enter the US. We look forward to completing the regular approvals and having DGC become part of Super Group as soon as possible,” Menashe told analysts.

While Super Group looks to finalize the DGC deal, Menashe also told analysts that some key European markets remain “on hold” for now. The company still awaits work from Dutch regulators, and Super Group’s assessment of the “ongoing viability” of the German casino market has yet to be completed.

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