According to the American Gaming Association, a record $1.39B was legally wagered on Super Bowl LIX last February 9. This was up from last year’s record-setting Super Bowl bets which totaled $1.25B. And the $1.39B, of course, does not include all the unofficial side-betting. Clearly, rolling the dice is an activity human beings simply love to do.
With this in mind, today we want to discuss international gaming co, Super Group Ltd. (SGHC).
Super Group operates popular sports betting and igaming brands including, Betway and Jackpot City, which are licensed in various jurisdictions around the world in Europe, the Americas and Africa.
Super Group currently boasts 4.7M monthly active customers (MAUs) and leverages their highly-experienced management team and data-drive approach to focus on “three core pillars” strategy:
On January 22, Super Group announced very impressive preliminary Q4/FY24 guidance:
What makes the prelim guide even more impressive is that this is the SECOND time Super Group had raised its guidance since the company’s November 6, Q3 earnings report. On December 10’24, Super Group issued this business update:
Keep in mind that Super Group also raised its guidance on its November 6, Q3 report, as well:
“Finally, given the strong performance to date, in particular, a spectacular October and assuming normalized sports results for November and December, we are revising our ex-US adjusted EBITDA guidance to exceed €345M, representing a margin of 22%.”
So what’s going on here?
Well, we think the key message can be found in the opening remarks of the Q3 Call:
What we take away from these remarks is:
As mentioned above, Super Group’s Management Team is truly Top Tier. They have done an incredible job consistently beating revenue guidance for the last 9 Qs in a row. Take a look:
As early as Q1’FY22, Management called out the burgeoning growth they were observing in Africa:
Sports revenue increased by €24M or 28%, mainly due to a strong growth in key markets in the African and Asia-Pacific regions.
At this point in time, Africa represented 20% of its overall revenue.
On the Q3’FY22, Management remarked that its African market was having a very positive impact on its Sports Book segment:
Looking at the results by business segment, our sports book performed very well this quarter… Overall, sports book revenue increased by €30 million or 14%, primarily driven by strong customer acquisition and retention in Africa and APAC…
By then, Africa had grown to 23% of overall revenue.
On the Q3’FY23, Management noted SGHC’s expanded footprint in Africa along with substantial jump in its customer base:
Africa continues to be an exciting region for us as we both scaled in our footprint of over 7 regulated countries. Year-on-year, we saw an increase in our African customer base of over 55% with this growth translating into strong revenue numbers for the region.
In Q3, the percentage of African revenue had grown to 29% of overall sales.
Fast forward to Super Group’s latest official report, Q3’FY24, and – as we noted above - the buzz about Africa continued to be incredibly bullish. For the second quarter in a row, Africa provided the largest portion of the company’s revenue. Take a look:
It is worth pointing out again, Management’s comments regarding Super Group’s longevity in Africa.
We have operated in Africa for more than a decade and have built a super strong competitive moat. Our footprint spans seven locally regulated markets, and we hold podium positions in five of them.
And there's more to come. We have a healthy pipeline of new markets that will be viable in the next 12 months.
Super Group enjoys so much more than simple “First Mover Advantage” in Africa. Anyone doing business in Africa will encounter myriad of regulators and regulations. Over the years, Management at Super Group has learned the “Ins n Outs” of the complicated regulatory morass to be found in Africa, regulations which, of course, vary from country to country.
When asked to “sort of give comfort to US investors” on the regulatory situation in Africa, CEO Neal Menashe, had this to say:
I mean we get this question all the time. We work with the regulators. We work with all the government bodies. We help draft the regulation…
So we understand this, we work with them, and that's the risk we have as a business all over the world. The fun, I think, in Africa, because we're working with them, and we pay all the taxes in these markets. In some of these markets, we're one of the biggest taxpayers.
Management’s hard-won, decade-long experience and success in dealing with regulators in Africa is strong testimony to the talent to be found on the team. These guys are pros to be sure. The experience and the relationships built over the years are a huge part of their competitive moat. But it doesn’t stop there.
Super Group also wields a significant technological advantage by virtue of owning its own tech stack.
In May of 2024, the company acquired long-time partner and sportsbook technology platform, Apricot, for €140M. The acquisition represents a major step forward for CEO Menashe’s vision to give the company the flexibility and power to quickly move into new markets and enhance the customer digital experience, furthering its edge over competitors.
“This is an exceptional opportunity for Super Group to take full control of our sportsbook technology, which would enable maximum flexibility for organic growth as well as M&A opportunities…
We’ll continue to deliver the best sports betting and gaming experience to our customers around the world as the benefits of this deal are realized.”
As mentioned above, Super Group enjoys a “podium presence” in 5 of the 7 African countries it operates in currently. Management has also alluded to a strong pipeline of countries on their radar for the next 12 months. Owning its own tech stack allows Super Group the ability to quickly establish a presence in a new country or market without having to cobble together support services from local providers.
We think this is a huge edge, especially when working in some of Africa’s developing nations.
Take a look at a snapshot of Super Groups established presence in Africa, next to potential new markets and opportunities that still exist there. Considering the volatility that exists in some of these nations, owning your own tech stack becomes an important component for success.
The Management team at SGHC has done a great job at consistently beating guidance. We think this streak continues. While we have not been able to engage with the company just yet – SGHC is in its quiet period – we believe the momentum observed in Q4 will carry over into Q1 and throughout 2025.
Per Management’s remarks on the Q4 pre-announce:
The Group is pleased to announce that Q4 2024 is expected to be its strongest ever ex-US quarter with Total Revenue of ~€486M and Adj EBITDA, a non-GAAP financial measure, of between €125M and €130M.
During the quarter the Group projects to have set a number of new monthly ex-US records, with December being particularly impressive, achieving new highs for deposits and Total Revenue.
This momentum has continued into the start of 2025, setting a solid foundation for the year ahead. I would like to thank the global Super Group team for an excellent 2024, and I look forward to an even better 2025.
As mentioned above, December was “particularly impressive,” and we believe this strength at year-end bodes very well for growth to continue into Q1. While Q4 certainly benefitted from a strong football (soccer) season, we still think the Q4 Call will offer plenty of encouraging color to support “an even better 2025.”
With Super Group’s obvious momentum and Management’s track record for beating estimates, we believe the story translates into 15-20% Top Line growth and 40-50% EBITDA growth versus the current estimates which seem way too cautious. Viewed thru this prism, the low-end of our base case implies Super Group posts 2026 consensus numbers in 2025, or ~7% above revenue consensus with EBITDA at least 16% above consensus. Please take a look:
Tack on the attractive, expanding high-cash flow yields to the way-too-low 2025 current estimates and SGHC offers investors a great entry in front of the Q4 Call on Tuesday, February 25 (before open).
If we are correct in our projections, we could easily see a re-rating in SGHC shares, as the discount currently afforded due to its heavy presence in Africa gets closed.
If investors award a Price-to-Sales multiple closer that of gaming companies like DraftKings Inc. (DRFT) and Flutter Entertainment (FLUT), then we are looking at around 60% upside for the stock, or ~$13.50.
We have established a core position in SGHC but are looking to add on any pullback to the 20day EMA and/or will round out our stake on any breakout through $8.50.
As you can see on the chart, SGHC has traded in a narrow range since the prelim-guide gap-up on Jan 22nd.
Stop Loss: We plan to use the rising 50day SMA as our Stop.
Africa regulatory risks are always a factor. The geopolitical situation of many African countries is also volatile and unpredictable.
But, with the population exploding over there along with the use of mobile phones, Africa is a vast and untapped market. That being said, it could also attract much bigger players to the space, with deeper pockets and resources than Super Group.
A soaring US Dollar would also be challenging for SGHC with such a large portion of its revenues coming from outside the US. Finally, should Canada or its African markets fall into recession, it could stifle growth in those two regions.
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Disclosure: We are long SGHC stock and calls. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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