Best of the Best in a class of its own

The share price of Best of the Best (BOTB) increased by upwards of a third after management raised profit expectations at the half-year mark. Shares in the company, which organises online prize competitions, had been flatlining through to last May, but started to move up on the back of a positive trading update.

There are concerns over liquidity of the stock given the price spread, and the fact that over three-quarters of the issued share capital is held by insiders. But a decent proportion of the remaining shares are held by retail investors and the latest share price movement was accompanied by a commensurate increase in volumes.

The prizes on offer through the botb.com website include high-end motor vehicles, Swiss watches, and holidays – what might be termed aspirational products. And there are also cash alternatives on offer. You are probably familiar with the company’s original business model if you have ever passed through a major UK airport and noticed that holidaymakers were handing over their cash – and personal details – in the hope of winning a Porsche or a Jaguar.

The venture was successful enough for company founder and chief executive, William Hindmarch, to transfer and up-scale the business through digital channels. The move to a digital pure-play enabled Best of the Best to dramatically increase its potential pool of players, rather than simply relying on airport footfall. And it also does away with the need to employ staff to physically run the competitions. Even though new marketing and IT costs have been incurred, the company routinely assesses how much it costs on average to acquire new customers.

Proprietary technology does play a part, but is not central to the commercial offering, unlike strategies which optimise results on the marketing front. (The site has a Facebook following of over 350,000 followers, alongside 240,000 Instagram users). Continued success in this area will be critical if the company opts to scale-up new operations abroad, but future ancillary revenue streams could flow once it works out the best way to monetise the mass of personal data it has accumulated over the past 20-years.

The half-year metrics wowed the market and Mr Hindmarch said that “sales momentum since the period end has been encouraging, and [the company] expects pre-tax profits for the full year to be materially ahead of management's expectations”. That followed on from the earlier positive update in May, so numbers, both in terms of customer acquisition and related revenues, are heading in the right direction. The company also seems to be in the habit of returning excess profits back to shareholders via special dividends. But while the company has clear earnings momentum, and interesting opportunities to exploit its data, it is unclear whether the business model is readily replicable, or if Best of the Best enjoys a distinct advantage over any potential competitors. Hold.

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