Betsson - A Swedish Value Play

Betsson AB, currently trading under the ticker: BETS-B is a swedish company that engages in the online gaming business, primarily in Scandinavia, Western Europe and Easter Europe through its subsidiaries. It currently offers poker, casino, sportsbook, scratch cards, bingo and other games - having a wide and varied offering to its customers. Betssons offers its services through known names such as Betsafe, Betsson, Casino DK, Casino Euro and Rizk, and has recently acquired Inkabet and bought a 28% stake in Slapshot Media to position itself in the Canadian and South-American market to capture future growth. 

Personally, I prefer organic growth as opposed to acquisitions, as acquisitions often lead to large and unneccessary premiums and goodwill, with dissapointing results to show for. With that said, Betsson's management has an impressive track record of profitable and efficient capital allocation. In 2020 return on invested capital landed on a staggering 13.4%, with a 5-year average of 13,48%. Return on equity in 2020 came just shy of 20%, ending at 19.9% for the fiscal year, and 19,7% for the 5-year average. These metrics indicate that management efficiently deploys both earnings and shareholders equity into the business for future growth. Betsson is already a well-established corporation in the online gaming industry, but impressive 5-year ROE and ROIC shows that the company has more room to grow through capital allocation with satisfying rates of return. 

Looking at Betsson's balance sheet statement, they had a current ratio of 1,27 at the beginning of 2021, with debt totaling 1.35B SEK and cash and short-term investments at 1.3B SEK. From these numbers it's safe to say that the company has sufficient liquidity to meet their financial obligations, financing growth, capex and opex through cash flow generation rather than vast amounts of debt. 

The risks related to Betsson are mostly due to their regulatory headwinds. In 2021 the company announced that they would temporarily remove their services from the Netherlands because of regulatory scrutiny within the betting and online gaming industry. New measures and rules are to be implemented in the Netherlands and other areas within the European market, but based on quarterly reports and conference calls, management seems apt to comply with the new regulations, making Betsson seem like an investment Mohnish Pabrai would prefer - low risk, high uncertainty. 

Time arbitrage is what will make the investment come to fruition. As the betting and online gaming industry is highly regulated globally, increased legal pressure will negatively affect the stock price in the short-term. People investing with an owner's mindset will soon realize that there's a large discrepancy between price and value, where the sharp decline in Betsson's stock price has come from an overreaction by the market. The stock price is close to a point of maximum pessimism, with all potential risks already discounted into the stock price. This means that all incremental improvements and positive news associated with the company will have a dramatically positive effect on the stock price, and with the underlying company steadily improving ang growing, Betsson is an attractive long-term investment.