Earnings Call: Super Group Reports Strong Growth in Q3 2024

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Earnings Call: Super Group Reports Strong Growth in Q3 2024

Super Group (symbol: SGHC) reported significant growth in its third quarter revenues and adjusted EBITDA compared to the previous year. The company focused on maintaining operational efficiency and strategically exiting the U.S. betting market. CEO Neal Menashe highlighted the company's strong financial performance, noting a record total revenue of €395 million, which represents a 13% increase from last year.

Adjusted EBITDA rose by 52% to €95 million, with the company's margin exceeding the target at 24%. Super Group's casino sector became the primary revenue source, accounting for 83% of total revenue, particularly in Africa and Canada. The company also announced it would begin regular dividend distributions and expressed a positive outlook on long-term margins.

Key Points:

  • Total revenue reached a record level of €395 million, up 13% year-on-year.
  • Adjusted EBITDA increased by 52% to €95 million.
  • The company's margin showed a strong performance at 24%, surpassing the target of 20%.
  • The casino sector contributed 83% of total revenue, with Africa being the biggest contributor.
  • Super Group concluded its U.S. betting operations with lower closure costs than expected.
  • A regular dividend distribution of €0.025 per share is planned starting from Q1 2025.
  • The annual adjusted EBITDA guidance has been revised to exceed €345 million.
  • The long-term margin target has been raised to 22%-24% by 2025.

Company Outlook: Super Group targets long-term margins of 22% to 24% by 2025. The company possesses a strong cash position with €297 million in unrestricted cash and no debt. A special dividend distribution is under consideration before the year's end.

Negative Aspects:

  • The closure of U.S. betting operations incurred a cost of approximately €36 million.
  • The company is evaluating its iGaming business in New Jersey and Pennsylvania with a focus on sustainability.

Positive Aspects:

  • Super Group maintained a margin above 24% for two consecutive quarters.
  • Significant growth potential is present in Africa, with an estimated $5 billion Total Addressable Market.
  • There is positive revenue growth in the iGaming sectors of New Jersey and Pennsylvania.

Shortcomings:

  • A cost of €5 million related to other market closures due to the devaluation of an investment in a processor in India.

Q&A Highlights:

  • No additional U.S. closure costs are anticipated for Q4.
  • Super Group is launching Jackpot City in several African countries and preparing for Alberta's regulations in Canada.
  • The company is actively communicating with regulators in Africa to ensure compliance and leverage local market opportunities.

In conclusion, Super Group's third-quarter financial results reflect a company effectively managing market challenges and capitalizing on strategic opportunities. The termination of U.S. betting operations and focus on profitable iGaming in New Jersey and Pennsylvania demonstrate a commitment to sustainable profitability. The company's strong performance in the casino sector, especially in Africa, and the initiation of dividend distributions signal confidence in its current strategy and future prospects.

InvestingPro Predictions: Super Group's (SGHC) strong financial performance in Q3 aligns with several key metrics and forecasts from InvestingPro. The company's record revenue of €395 million and a 52% increase in adjusted EBITDA are reflected in InvestingPro data, which shows solid revenue growth of 11.4% over the last twelve months as of Q2 2024. This growth trend is supported by an impressive 32.68% EBITDA growth during the same period.

The company's focus on operational efficiency and profitability is clearly visible in InvestingPro metrics. With a gross profit margin of 45.73% and an operating income margin of 6.49%, Super Group demonstrates its ability to effectively convert revenue into profit, consistent with the reported margin of 24%, which exceeded the company's target.

InvestingPro highlights that Super Group has been "profitable over the last twelve months," which reinforces the positive financial outcomes the company has reported. Additionally, a tip stating that SGHC is "trading close to its 52-week high" reflects the market's favorable reaction to the company's strategic decisions, such as exiting the U.S. betting market and focusing on high-growth areas like Africa.

The strong cash position mentioned supports the assertion that SGHC "holds more cash than debt on its balance sheet," according to an InvestingPro tip. This financial stability bolsters Super Group's ability to commence dividend distributions and evaluate special dividends.

For investors seeking a deeper understanding of Super Group's financial health and market position, InvestingPro provides five additional tips that offer comprehensive analysis to inform their investment decisions.