Growth despite advertising ban
Q2 2024 individual results
25 July 2024
- Telematic Interactive Bulgaria AD reported 10% revenue growth for Q2 YoY reaching BGN 60mln. Casino revenues take the lion’s share of BGN 54.4mln or 90.7% of the total operational revenues after 8.6% YoY growth. Sports-betting reached BGN 5.5mln, which marked an increase of 31.3%. The account has increased slightly its relative value to 9.2% of the operational revenues. According to the management, the growth was due to the Euro cup and the implementation of the new betting platform. It will be interesting to follow how the business line develops further in Q3 and Q4 when the major football leagues are on.
- The main reason behind the increasing revenues is the increased average income per client and the doubled conversion rate. The average income per client went up by 10% YoY from BGN 96 to 106 and the conversion rate shot up from 36% to 70%. This was due to the new bonus programs and promotions.
- Unfortunately, a large portion of the new clients are such that play once. It benefited the average income per client, as initial spending by such players seems to be greater than what regular clients spend over the measured period. This also increased the churn rate, which now stands at 14%.
- OPEX increased nearly 2x more than sales – by 18.2% to BGN 48.6 mln. The largest contributor is External services, which increased by 19.5% to BGN 30.4 mln but represents 66.4% of OPEX. In that, the 3 largest sub accounts, responsible for 92.2% of the account value are Fees for gaming content, which increased 9.5% to BGN 11.2 mln (23.9% of OPEX), Marketing, which increased over 25.2% to BGN 10.6 mln (21.8% of OPEX) and Bank fees, which increased 15.2% to BGN 5.9% (12% of OPEX).
- Personnel expense increased 38.8% to BGN 4.5mln. It was driven by the increased overall compensation to employees, as well as the additional compensation for the starting business in Peru.
- Current liabilities increase is due to the money set aside for dividend distribution. Telematic distributed a dividend on 13.06.2024 for BGN 0.9 per share, representing 5.70% dividend yield as per that distribution alone. Including the distribution on 13.03.2024, the total yield would stand at 8.16%, which makes Telematic one of the best dividend stock propositions on the BSE.
- The company has indicated that there is increased spending due to the expansion in Peru and Macedonia. So far no cost breakdown has been shown or geographical breakdown of revenues has been indicated (if there are revenues outside Bulgaria).
Commentary:
- The company faced a major hurdle in Q2 – the enactment at the end of May of legislation, which forbids gambling companies from online and TV advertising. Customer deposits are directly proportional to the amount of effective advertising, which made analysts wait anxiously to see how the company would approach this problem. Unlike most competitors, TIB paid less attention to TV advertising, so its disappearance did not have a major negative impact. The sponsorship of sports clubs and events, however, remained a major element of the marketing strategy. Additionally, the efforts in the last couple of years in SEO (search engine optimization) seems to be yielding results, which mitigate the downturn. It will be interesting to see if this ban will affect the revenues in the following quarters and if the company will put effort to develop the other business line – sport betting – to hedge the potential downside.
- As mentioned in previous reports, there are signs for reaching revenue plateau. It is also true, however, that an important adverse factor came in place- the ban on advertising. Because of this, it is hard to estimate how much of the slowdown would be due the assumed market saturation and how much due to the negative impact from the ban, which was also hedged partially by the focus of advertising in non-forbidden channels. Nevertheless, the need to diversify revenue, both geographically and thematically (possibly by developing the other business line – sports-betting), has become ever more pressing. We are hoping that the management is seriously focused on the expansion in Peru, which offers at least 3x the potential in Bulgaria and requires the same expertise, which allowed them to build the existing business.
- We should not forget, however, that despite everything, Telematic Interactive is a superior investment. The steps towards efficiency have eroded part of the EBITDA and the Net Margin, but still the company remains a cash rich enterprise with very low debt, operating at 17.6% margin. It is definitely not bad, but the profitability measures are roughly at 2/3 of what they used to be. Additionally, the dividends they distribute make this one of the best picks when shortlisting secure high-dividend yield stocks. The transparency, as mentioned earlier, is commendable and top notch. In this sense, it would be very positive to see the management focus again on a step that could be a game changer as it has shown that it knows how to do gaming and has attracted decent amount of interest through shareholders, who believe in their ability.
Ivaylo Valchev
Equity Analyst
Tel.: +359 2 937 9862
e-mail: valchev@sis.bg
Svetozar Abrashev
Senior Managing Partner
Tel.: +359 2 937 9869
e-mail: abrashev@sis.bg
Sofia International Securities
Sofia 1000,
140 G. S. Rakovski Str.
Tel.: + 359 2 937 98 65
e-mail: info@sis.bg
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