Super Group: Wait For A Super Discount

Summary

  • Super Group votes on their business combination on January 26.
  • The online sports betting business is going public via a SPAC transaction just as other sector stocks are collapsing.
  • The stock will offer a deep value on any de-SPAC weakness with Super Group already trading at just 3x sales.
  • This idea was discussed in more depth with members of my private investing community, Out Fox The Street. Learn More »

Smartphone with playing cards, chips and roulette, black-gold background. Concept of online gambling, online casino. Copy space. 3D illustration, 3D render.

MARHARYTA MARKO/iStock via Getty Images

While Super Group is a promising sports betting business, the stock is hard to own until after the close of the Sports Entertainment Acquisition Corp. (SEAH) SPAC deal. The combination of the weakness in the sports betting sector and typical de-SPAC issues, the stock could easily trade far below $10. My investment thesis is now Bearish on the stock until after a post deal sell-off leads to a very attractive entry point.

Crushed Sector

The Super Group business combination is up for vote on January 26. The company first announced the deal back on April 25 last year.

The stock has traded mostly flat around $10 since announcing the SPAC deal. Some other online gambling SAPC deals have regularly traded far above $10. The most notable was DraftKings (DKNG) soaring above $70 while even Golden Nugget Online (GNOG) and Rush Street Interactive (RSI) traded easily above the $10 SPAC deal price.

Chart
Data by YCharts

All of these stocks are cratering with Golden Nugget Online breaking the key $10 price despite a merger deal with DraftKings. Rush Street is heading towards $10 quickly after trading up to $20 on M&A news in the sector while DraftKings is now just a $20 stock.

BetMGM just reported impressive revenue numbers for 2021. The company reinforced 2023 positive EBITDA forecasts, but the whole online gambling space is getting crushed for aggressive customer acquisition costs. The company owned by MGM Resorts (MGM) and Entain (OTCPK:GMVHF) saw revenues reach $850 million in 2021, but the adjusted EBITDA loss was a massive $430 million. A company producing negative 50% EBITDA margins isn't going to impress the market in a risk off environment.

BetMGM forecasts 2022 revenues surging to $1.3 billion. These growth figures are what make these online gambling stocks appealing on the weakness.

Betway, owned by Super Group, isn't immune to these crazy promotions to acquire customers. The company promises up to $5,000 in cash prizes via Free Play while offering similar large promotions to new customers.

Betway

Source: Betway

No Longer Discounted

Super Group was an appealing sports betting stock due to the company forecasting an adjusted EBITDA profit while investing in growth in the U.S. market. The company forecast 2022 NGR of $1.7 billion with EBITDA over $420 million due to strong European businesses.

The stock was appealing when these other online gambling stocks traded with forward EV/S targets of 10x. At one point, DraftKings was trading at levels closer to 20x forward sales targets.

Chart
Data by YCharts

Super Group had a target equity valuation of $4.75 billion with a similar EV. With the SPAC holding right near $10, the stock is trading at just below 3x prior sales targets.

Where the investing story would become interesting is for the de-SPAC transaction to crater the stock. The SPAC is likely to see some redemptions with the stock trading below $9.50 now and the market might sell the stock in the process.

Super Group would become very interesting at these levels. The company only forecast 2022 NGR growth in the range of 13%, but the U.S. operations are just now ramping up.

Super Group

Source: Super Group '21 investor update

The growth is nowhere near the forecasted 50% growth rates of DraftKings or BetMGM. Now, the market might like the adjusted EBITDA profits of Super Group eliminating a massive selloff in the stock.

The company is in the process of acquiring Digital Gaming Corp. with access to 11 U.S. states including Pennsylvania and New Jersey. The company only took their first bet in March 2021 providing a long runway for growth in the U.S. Only as recently as October, Betway became operational in Iowa pushing the U.S. operations to five active states. Along with Poland in Europe, Super Group continues to have a long pipeline of new market expansion ahead.

Takeaway

The key investor takeaway is that Super Group is an appealing global gambling stock, if the price collapses like other sector plays. The company has an appealing EBITDA profit profile despite just entering the U.S. online gambling market. Investors should watch from the sidelines until the transaction is done and the stock settles out. If Super Group falls substantially following the de-SPAC transaction, investors should use the weakness to own this stock.

If you'd like to learn more about how to best position yourself in under valued stocks mispriced by the market during 2021, consider joining Out Fox The Street

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This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.


Stone Fox Capital launched the Out Fox The Street MarketPlace service in August 2020.


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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in SEAH over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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