The highest dividend yield out there
Q3 2024 individual results
30 October 2024
- Telematic Interactive Bulgaria AD reported 3% revenue growth for Q3 YoY reaching BGN 60mln. Casino revenues take the lion’s share of BGN 85.7mln or 92.6% of the total operational revenues after 11.2% YoY growth. Sports-betting reached BGN 6.8mln, which marked an increase of 29.4%. The account is 7.4% of the operational revenues. According to the management, the growth was due to the Euro cup and the implementation of the new betting platform. Sportsbetting is gradually increasing its importance in the overall revenue mix and can be a great diversifier to bring different type of clients.
- The main reason behind the increasing revenues is the increased average income per client, the increased active clients per month and that is primarily due to the more than doubled conversion rate. The average income per client went up by 7% YoY from BGN 102 to 109 and the conversion rate shot up from 35% to 74%. This was due to the improved product and the more effective marketing targeting specific client segments.
- The churn rate for the 9 months grew to 10% which is attributable to the effect of aggressive seasonal campaigns, which attract, among others, clients which would be unlikely to spend. As a result, a greater portion of them, compared to regular clients, choose to quit after the end of the campaigns. The effect from the implementation of the CRM system allowing to target various client segments, however, is very positive and it can be see on the QoQ decrease of the churn rate from 5% to 2%.
- OPEX increased significantly more than sales – by 19.5% to BGN 75.5 mln. The largest contributor is External services, which increased by 19.7% to BGN 47.5 mln but represents 63.4% of OPEX. In that, the 3 largest sub accounts, responsible for 91.9% of the account value are Fees for gaming content, which increased 8.6% to BGN 17.3 mln (22.9% of OPEX), Marketing, which increased over 30.2% to BGN 10.6 mln (23.2% of OPEX) and Bank fees, which increased 12.8% to BGN 5.9% (11.7% of OPEX).
- Personnel expense increased 44.6% to BGN 7.1mln. It was driven by the increased overall compensation to employees, as well as the additional compensation for the started business in Peru.
- Current liabilities increase is due to the money set aside for dividend distribution. Telematic distributed a dividend on 09.2024 for BGN 0.45 per share, representing 2.5% dividend yield as per that distribution alone. Considering the other 3 distributions earlier this year, that would amount to a total DPS of 2.14 or 11.9% dividend yield as per the last dividend payout date price.
Commentary:
- The company faced 2 major problems so far in 2024 – the enactment at the end of May of which forbids gambling companies from online and TV advertising and the implementation of the new law in Macedonia in October, which allows only one company with at least 51% state ownership to organize gambling games meaning they would be essentially kicked out of the market.
- The first one was important to the overall business as customer deposits are directly proportional to the amount of effective advertising and many of the competitors rely heavily on those promotion channels. Telematic, however, paid significantly less attention to TV advertising, so the disappearance of this channel did not have a major negative impact as the sponsorship of sports clubs and events remained a major element of the marketing strategy. The efforts in the last couple of years in SEO (search engine optimization) as well as the more effective targeted marketing via the new CRM system is yielding positive result, which completely mitigated the possible downturn.
- The second one is supposed to have a more strategic impact as Macedonia was meant to be an expansion market. We estimated in earlier reports that the possible upside of the market in the country (considering disposable income and the size of the population) would be around 10% that of the existing revenues from Bulgaria. An argument could be made that Macedonia could be a focal point in targeting customers from neighboring markets, such as Albania, Kosovo and Serbia, but even by doubling that, it would be 20% of the Bulgarian revenues. Certainly, it should not be neglected and the cost spent so far could be considered sunk cost, but it is not a systemic shock that it can’t recover from.
- On the positive side, it is likely that the management will be faced with the requirement to focus more heavily on expanding in other markets – both geographically and thematically. A developed business in Peru could mean another stream of roughly 3x the revenue from the existing Bulgarian clients and that would require roughly the same technical expertise and perhaps adjusting to the local marketing approaches, which are likely to be different.
- Another possibility for expansion remains the sports-betting line. The astronomical growth of sports-betting companies in the last decade has shown that given the correct approach employing competent sports-betting trading staff as well as strict customer targeting and customer monitoring strategies to avoid unproportionate losses, can be very beneficial. The size of this market is hard to estimate as it is both related to product promotion and competent customer service workforce, which understands not only the language of the targeted market, but also the local mentality and customs. In other words, if a company targets a market like Greece, it would not be sufficient to hire customer support staff knowing Greek – they would need to hire actual Greeks. So far the sports-betting line is steadily generating close to 10% of revenues and it will be interesting to see if that will be expanded.
- Despite the problems, the stock is one of the best picks on the market so far. It has appreciated 29.66% over the last 52 weeks and the dividend yield they offer is unmatched so far, making it a prime pick among high-dividend yield stocks. The eroded EBITDA and Net Margin are likely to affect the portion distributed for dividends in 2025, but in terms of operations, it still remains a cash rich enterprise with very low debt, operating at 17.2% margin. As we have praised them in the past about their transparency, they continue to have the same superior investor relations practices not shying away from disclosing events and performances in details. The company continues to be a gulp of fresh air among the investable universe and we look forward to seeing how the expansion in South America will shape its future performance.
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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