- A significant increase in customer acquisition costs
- The marketing function remains under pressure
Last July, when reviewing prospects for Best of the Best (BOTB), we highlighted the “simplicity and capital-light nature” of its business model, but qualified that observation by pointing out that we couldn't be sure “how post-lockdown trading will pan out”.
The company, which makes its money by running weekly competitions to win upmarket cars and other luxury prizes, shifted the focus of its operations from airports and shopping malls to a fully online offering. It did this about six months before the pandemic took hold – auspicious timing to say the least.
The lockdowns resulted in changes across the consumer spectrum, with many online operations noting a surge in business activity. Shares in BOTB, trading at 401p at the end of March 2020 were changing hands at 3,350p a year later. Unfortunately, they have given up those gains in the intervening period and the sell-off has continued following downgraded guidance within its latest half-year results, as customer acquisition fell away in November and December.
Management notes that the “costs of acquiring new customers during the period have increased significantly above pre-pandemic levels”, while changes introduced by Apple's iOS14 operating system have reduced the effectiveness of its targeting and marketing functions, both central to the business model.
Still, revenues are running at twice the level of when it completed the transformation to a fully online business. And the company has no debt on its books and £8.4m in cash on the balance sheet, yet its ability to fund special dividends could be impinged if marketing costs remain at elevated levels. Pre-tax profits are guided at £4.25m to £4.75m, in line with consensus, but well adrift of the £14m booked last time around. Hold.
Last IC View: Hold, 1,975p, 16 Jun 2021
|BEST OF THE BEST (BOTB)|
|ORD PRICE:||450p||MARKET VALUE:||£42.3m|
|TOUCH:||420-450p||12-MONTH HIGH:||3,496p||LOW: 432p|
|DIVIDEND YIELD:||1.1%||PE RATIO:||5|
|NET ASSET VALUE:||68p||NET CASH:||£8.35m|
|Half-year to 31 Oct||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
|NB: A special dividend of 50p was paid to shareholders on 2 July 2021|