Saturday, 4 January 2014

screener harvest: Pferdewetten.de

This is a small nano-cap from Germany with mcap of roughly 5Mio Euro and very low trading volume. All Filings are available in German only.

I frequently scan for companies with recent insider buying and read the annual reports (here only 33 pages) to comprehend why the shares may be attractivly priced.

DateName InsiderPositionbuy/sellnumerprice €volume €
30.12.2013 Pierre Hofer CEObuy10,0001.5815,800
30.12.2013 Sergey Lychak Boardbuy70,7311.58111,755
30.12.2013 Stefan Hänel Boardbuy15,0001.5823,700

 Business Profile

The pferdewetten.de AG (formerly SPORTWETTEN.DE AG), based in Dusseldorf, is primarily active in the market for horse betting in Germany via
  • online horse betting
  • stationary horse-betting center.
Main area of business is the Internet platform www.pferdewetten.de with more than 25,000 registered customers, which according to the company ranks among the market leaders in the German online horse betting market. Bets can be placed on horseraces in 27 countries, of which the vast majority will be broadcasted live on the Internet. There are also over 170,000 archived race videos - according to the company the world's largest archive on horse racing. The Company has been granted licenses in Germany for their offline betting office in Munich and in Malta for their online offerings.
The legal framework for offering horse betting according to the German gambling treaty from July 2012 is still unclear. For offerings of horse betting for German customers on the Internet according to § 27 approval is necessary. To this day authority has not awarded licenses yet. The Group has applied for a license and meets all requirements. This means the Group's offerings are only tolerated as long es they don't get official license. This is a major risk.
The pferdewetten.de AG advises not only their subsidiaries, but also other companies and clubs. In its function as management holding the pferdewetten.de AG coordinates all business activities of their subsidiaries, like the 2009 acquired Accendere GmbH. The system house acts as a consultant on all aspects of information technology like the self-developed payment and web content systems for online betting.

The pferdewetten.de AG has been listed since July 2000. The shares are traded on the German stock exchange on the open market with low
disclosure obligations. I have to say for such a small company actual disclosure is excellent with quarterly reports and a bigger half-yearly report with consolidated statements.

Management 

The company is so small that the board of director consists of only 1 person, the CEO.
I tend to like variable executive pay as it alines interest with shareholders. For 2012:
  • 3.0 % of EBIT's above € 500,000 based on the consolidated figures
  • 1.5 % of Hold (betting stakes minus costumer discounts, betting taxes and bookmaker's profit) 
  • cap 70,000 €
Actual pay of the CEO for 2012 was as follows. 165,000 options with a strike price of 1.11€ were granted in 2012.:

fixedvariableoptionscar allowancetotal
138,00070,00068,30015,600291,900

 From 2013 onwards the CEO gets 180,000 fixed salary plus
  • 3.0 % of Ebit
  • 1.5 % of bets minus bets minus payouts, Bonuses, royalties tot hird parties, other marketing expenses.
  • cap 140,000
The long-term component of remuneration is based on earnings growth (EBIT) for the years 2013 to 2017. There is a target growth rate of 20%Upon reaching a higher growth rate for the period from 2013 to 2017, the Executive Board (CEO) receives an additional 1.5% of each year's EBIT retrospectively. The amount is not capped. In the annual report's outlook for 2013 management expects double-digit revenue growth and earnings in the range of 0.8 Mio to 1.0 Mio, which translates into a low single-digit PE for a growing company.

Per 31.12.2012 the CEO only owned a minuscule amount of 11,333 shares, which he increased by 10,000 per 30.12.2013. This peaks my interest, although I would not invest in such a small company.

Structure

The holding has the following subsidiaries:

Subsidiarysinceownershipequity [000 Euro]net income 2012NOL [000 Euro]
pferdewetten-service.de GmbH,12.08.03100%-2676.7601.72671.7
netX International Ltd., Malta01.04.05100%830.6-2.149.9
netX Services Ltd., Malta01.04.05100%-469.34713.3
netX Betting Ltd., Malta01.04.05100%-30979.354.2
netX Casino Ltd. i. L. , Malta01.04.05100%-0.804.1
Accendere GmbH, Germany01.03.09100%-107.112.713.9


netX Casino Ltd.. is in liquidation.

On the consolidated balance sheet pferdewetten-service.de GmbH has goodwill of 607.8T€,  netX Betting Ltd. 607.7T€, Accendere GmbH 118.6T€ for a total of 1,334.1T€ goodwill.

Pferdewetten.de has one major shareholder mybet Holding SE with 62.38% since 2008, which posted a loss for the first nine month 2013. There is no contract between Pferdewetten and mybet which cedes the full control to the majority shareholder. Mybet could use the money of Pferdewetten.de as its own cash is burning away due to losses. Pferdewetten.de AG pays no dividend currently.
Based on the voting results with always zero "no" votings of the 2013 annual meeting and knowing part of the supervisory board works for Mybet, it looks like no shareholder of the freefloat was attending the meeting.

Numbers 


T€9m/20139m/20122012201120102009
gross revenue

30,31626,00217,76722,122
EBITDA 75572586927947-771
EBIT 611574674-17-268-1,561
net income624578744193-460-1,265
#shares3,603,8653,603,8653,603,8653,603,86510,811,59510,811,595
earnings per share0.170.160.210.05-0.04-0.12

The numbers show improving operations since the CEO took over in July 2010. Numbers for the first nine month 2013 are slightly better than for 2012.


T€30.09.201331.12.201231.12.201131.12.201031.12.2009
equity3,4322,7792,0121,7762,236
Eigenkapitalquote63%62.4%56%57.7%58.7%
Bilanzsumme5,4884,4523,5923,0763,794

Compared to its cash & equivalents of T€ 1,953 financial debt stands at only T€ 48 per 30.06.2013. Per 30.09.2013 cash & equivalents improved to T€ 2,306
 
Current activities

 Despite costs due to the integration of the in June 2013 acquired betting platform equi8com the results are in line with management's expectation for 2013. The aim of this aquisition was to migrate part of the customer base (12,000) and its offerings into the pferdewetten.de platform. The number of active customers migrated to pferderennen.de are above expectation per H1/2013 report. Managements believes this will improve the results for 2014.  Further details of the acquisition, in particular in relation to the purchase price, have not been disclosed. Compared to the existing 25,000 registered customers the impact in my opinion could be significant.

Pferderennen invests in its software and will roll out new features in 2014, which deteriorates short-term profit further.

On july, 26th the company launched its international offering betbird.com. The company expects new business with new customers and corresponding profits. This leads to increased marketing spending. 

Conclusion

 For 2012 the company achieved Ebitda T€ 869 and the operating cashflow was even higher. In the meantime the company paid back all the debt and increased cash&equivalents to T€ 2,306. Despite investing in their international platform, developing new features, integrating one aquisition and more marketing the company shows increasing results. Assuming flat Ebitda, 1.5 Mio excess cash and a mcap of 5 Mio EV/Ebitda for 2013 would be 4.0 and the p/e single-digit. Furthermore CEO's interest seems to be aligned with shareholders due to his variable renumeration package. Although his renumeration of 291,900 was more than 1/3 of the 2012 Ebitda. The company's business model would scale very well with increasing turnover and low required tangible capex.
I can understand why Insiders increased their position slightly but I am not comfortable owning such a small company without knowing management personally.  Furthermore despite my experience with Tipp24 (write-up) and Lotto24 (write-up), I don't know the betting market especially horse-betting very well.
[no position]


 





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