Life isn’t getting any easier for competitions firm Best Of The Best (BOTB) or its long-suffering shareholders, it seems.
Following a disappointing interim report last November, its latest trading update paints a miserable picture of the full year, sending the shares down 30% to 423p and taking the group's market value to less than £40 million compared with more than £300 million at its peak last spring.
COSTS UP, CUSTOMERS DOWN
After reporting late last year that customer acquisition costs in the first half to October had stabilized, albeit at a significantly higher level than it would have liked, the firm now says the cost of attracting new customers in November and December jumped 37% on the prior six months.
What is more, despite this sharp increase in costs - which includes prizes and advertising on platforms such as Facebook and Instagram - the firm picked up fewer new customers than it hoped.
While early indications this month are that marketing costs ‘may be trending back towards levels experienced in the period under review’, the reduced number of new punters in November and December together with a ‘cautious’ outlook means revenues for the full year to April are likely to be in the region of £34 million to £35 million. Consensus estimates sit at £40 million according to Refinitiv data.
The company's forecast compares with revenues of £45.7 million last year, when the firm cashed in massively on lockdown spending by bored, cash-rich consumers who bought into the firm’s promise of dream cars and a luxury lifestyle.
Chief executive William Hindmarch even admitted as much, saying the business ‘benefitted more than originally assumed from a tailwind during the Covid period, whilst much of the country remained in lockdown with restricted movement, travel, entertainment and other retail opportunities’.
Profits before tax are now seen in the region of £4.5 million, give or take a quarter of a million, compared with over £14 million last year. Given earnings for the first half were £3 million, that suggests a dramatic fall in profitability in the second half.
TOUGH OUTLOOK
The firm insists it is profitable, cash generative, has no debt and has a large customer base, but it seems to be ignoring the fact competition in its market has exploded since the pandemic with the National Lottery having upped its game and every charity under the sun now offering its own online lottery, not to mention the proliferation of tombola and other games being pushed out by the betting companies.
FinnCap analyst Nigel Parson is positive on the stock in the long term, but admits it is too early to call a recovery with any certainty saying the share price will only begin to recover ‘when the market starts to believe the company can achieve or exceed new guidance’.
After today’s update, Parson says he has ‘removed most of the growth’ from his estimates, cutting his current year earnings forecast by 25% and his 2023 and 2024 forecasts by over 30% as well as reducing his price target from £14 to 810p.
