Uni-betting on the long term
Swedish powerhouse Unibet posted impressive first-quarter figures showing solid growth across all verticals. Yet despite this, investors ran for the exit as the company's old financial targets were discarded. Dawid Myslinkski of analysts Redeye offers his explanation of why.
SWEDISH powerhouse Unibet recently posted impressive first-quarter figures. Solid growth across all verticals summed up the top line growth to 16%, indicating Unibet was winning market share. Highlights included gross gaming revenues from the sports book, up 56% in Western Europe, and non-sports betting by 51% in Central, Eastern and Southern Europe.
But despite the strong figures, investors ran for the exit as the company’s old financial targets were discarded and chief executive Petter Nylander predicted last year’s EBIT-result would prove hard to beat in 2010.
The reason? The board of directors had decided Unibet should apply for a French licence, implicating higher taxes and betting duties, the exclusion of Unibet’s core casino products from the French market, and increased marketing costs for France.
In summary, these factors would cause the important French market to provide only a marginal contribution to the group’s full year EBIT-results.
On average, analysts had estimated an EBIT of £44.3m in 2010, whereas the EBIT for 2009 summed up to £32.8m. With profit growth flat in 2010 (significantly below market expectations) and no new financial targets from the company, the market found itself in limbo. Given the market loathes uncertainty, Unibet losing 25% of its market cap during the following week should not have been a surprise to anyone.
So could the big slump be considered an overreaction? Nearly all analysts had had positive recommendations before the report and as some of them changed their minds, there were suddenly a lot of simultaneous sellers. This was also the week when most stocks around the world fell on worries about the Greek economy, adding to the drop.
Given Unibet’s market position and size, the current slump in the stock price is a buying opportunity for the patient investor, with an investment horizon of 9-18 months. In the short term though, I don’t expect investors to regain their confidence in Unibet, and there are probably better stocks to bet on.