Company Overview: SportsHero Limited (ASX: SHO), formerly known as Nevada Iron Limited, is an Australia-based social media company, engaged in developing real-time sports social prediction platform connecting sports fans globally to showcase their skills in predicting outcomes of the game they love. It has two wholly-owned subsidiaries i.e., Sportz Hero Australia Pty Ltd, and Sports Hero Enterprise Pte Ltd. Initially, it was founded on 12 January 2007, as Richmond Mining Limited, and was admitted to the Official List of the ASX on 10 June 2008 as a mineral exploration company. Lately, on 12 March 2012, the Company changed its name to Nevada Iron Limited. The headquarter of the company is situated in Lota, Australia and is being currently headed by Mr. Michael Higginson– the Chairman and Company Secretary. It offers a sports gaming platform that enhances the prediction program across soccer and cricket. The company app focuses on working with global brands to drive peer-to-peer commerce and user engagement, by providing a platform to reach sports fans around the world. The SportsHero application is available in over 160 markets across six continents. The SportsHero application allows users to compete with other users, predicting outcomes of games, matches, and competitions that span a range of sports, including football (soccer) and other sports. The SportsHero application also features in-application virtual currency, available through SportsHero Points and Golden Tickets, exchangeable for merchandise, event tickets, and other items on the SportsHero. The Group had 10 employees as of 30 June 2017 excluding the Chairman and two non-executive Directors.
 

SHO details

Unique Revenue Generation Model: SportsHero Limited (ASX: SHO) has a robust business model. The company intends to derive revenue from two main sources i.e., (1) subscription-based sports tips and (2) pool-based contests where valuable sports souvenirs and endorsed merchandise as prizes are provided. In subscription-based sports tips, the company collects the subscription fees and splits the fees 50%-50% (post deduction of other costs like App Store and other distribution costs) with the leaders who are being followed. In pool-based contest revenue stream, users “buy-in” to join contests, and receive valuable prizes where the sum of the prizes is close to the pool buy-in amount and SportsHero award prizes to the winners of the contests. These contests are also helping to keep users engaged and create a more idealistic circle of leaders and followers. For that, the company has introduced three platforms, i.e., free to play (F2P), pay to play (P2P), and pay to follow (P2F). Besides this, the SportsHero app has a feature of virtual currency which is exchangeable for merchandise, event tickets and other items on the SportsHero website. As per the research, it has been estimated that there are over 1 billion smartphone users across the Asia Pacific region (including China) and it has been further estimated that around 50% of these users are sports fans. With its growth driven by providing video highlights, live scores, user tournaments and games under the growing sports culture (particularly across Asia including India), the company has the potential to become the dominant social media platform for sport.


Unique revenue generation model (Source: Company Reports)

Synergistic deal with Primera Division, LaLiga – could be next growth Driver: The company has recently signed a partnership deal with LaLiga with the objective of generating rapid user base growth in the Indonesian market where football is the most popular sport with millions of passionate fans. As per the deal, it provides a host of money-can’t-buy prizes being made available for SportsHero users, including VIP tickets to watch LaLiga games in Spain with a private stadium tour, access to team training sessions, as well as a host of other branded and signed LaLiga merchandise. In addition to this, SHO will also run monthly LaLiga competitions for the users to win the coveted LaLiga Hero of the Month and Golden Boot awards. According to the management, this is the First-of-its-kind partnership deal with a major football league that will enable Indonesian’s vast number of passionate football fans to connect with LaLiga via expert prediction, unique e-store offerings, and money-can’t-buy prizes. Going forward, we assume that the group will drive the business through its next phase with help of synergistic deal with LaLiga thereby supporting topline growth in years to come. This is expected to find support from increasing user base via an agreement for its software technology.


LaLiga Hero of the Month competition screens (Source: Company Reports)

Collaboration with Pundi X – Support Volume growth: SHO has formed a collaboration with global cryptocurrency platform Pundi X, which will be SHO’s market entry partner for Indonesia. This collaboration is subject to agreeing on definitive terms and is formed in which SHO users can buy and sell goods and services on a worldwide basis using SportsHero tokens. We expect that these strategic partnerships will support the volume growth of the company in the forthcoming period with further opportunities in the market via collaborations.

New Product Launches to Drive Growth – To attract more users on the company app platform, the company has recently launched version 3 app in the capacity of introducing new sports such as cycling, AFL or rugby with existing sports i.e., cricket and football. The new version 3 app is now available for Android phones at Google Pay and for IOS phones at Apple’s App Store. As per the management, this will support the rapid on-boarding of new sports and commercial partner integration thereby supporting topline growth in years to come.


The App with various features (Source: Company Reports)

Sports Campaign – a key driver for revenue: The company has initially launched its World Cup Campaign in Indonesian demonstrated proof of concept and delivered very encouraging early revenue flows. The company is actively focusing on to build its fully localized version of the SportsHero app for the Indonesian market to maintain its position as one of the leading sport prediction apps in the world. Following the introduction of the Company’s platform to certain strategic corporate entities in Indonesia, the Company is very confident that South East Asia will become SportsHero’s biggest football audience and market. In the first two weeks of the World Cup campaign, the group has witnessed an improvement in terms of profitability wherein localized Indonesian users generated gross revenue of A$50,180, which translates into a gross profit of more than A$42,653 for SportsHero. Further, the company has generated gross revenue in July month  that more than doubled, exceeded A$107,000 due to the following start of the 2018/19 English Premier League and Spanish LaLiga seasons - the two most followed football leagues in the world that are a key focus for growth for SportsHero. We expect that the world cup campaign, 2018/19 English Premier League and Spanish LaLiga seasons could be the growth catalyst for the company.

Completed Share Placement Program: Recently, the group announced that the company has finalized the raising of $1,000,000 pursuant to the placement of 5,000,000 shares, at an issue price of $0.20 per share, to sophisticated and professional investors located in Hong Kong, Singapore, and Australia. The company will use this fund for the final development of Version 3 of the Company’s app, the development of a cycling app, achieving market growth via new partnerships and for working capital purposes. We expect that this raised fund will support its ongoing development and commercialization activities.

Financial Highlights: During the FY18, the consolidated revenue from continuing operation substantially increased year on year (YoY) to US$ 16,841 in FY18 . However, loss after income tax expense amounted to $ 4,353,520 in FY18 from $ 4,266,644 in FY17 at the back of higher administration expenses, employee & consulting expenses, depreciation and amortization expense, rising finance cost, and impairment of intangible assets during the same period. As a result, basic loss per share stood at 1.85 US cents per share from 3.85 EPS in the previous year. As on 30 June 2018, the Group had consolidated total assets of US$ 491,247 (FY17: US$ 234,676) with the cash balance of US$ 323,333 from cash reserve of US$ 1,489,666 in FY17. The net asset declined due to the rise of trade and other payables in FY18 against FY17. In January 2018, SHO raised US$ 782,800 (A$1,000,000) through a share placement. This fund was slated for use in accelerating ongoing developments and commercialization of the SportsHero Business and administration and fulfilling other working capital needs. In FY2018, SHO witnessed net cash outflow of US$ 1,823,132 from operations which implies the decline on YoY basis. In FY2017, net cash outflow was US$ 1,437,293. The company’s payments to employees as well as suppliers increased from US$ 1,463,406 in FY2017 to US$ 1,839,431 in FY2018. Its net cash inflow from the financing activity also fell to US$ 805,255 in FY2018 from US$ 2,373,297 a year ago. No dividends were proposed or paid during the period.


FY18 - Consolidate P&L (Source: Company Reports)

Stock Performance and Outlook: Over the years, SHO has been implementing its Go-to-market strategy on a pilot-basis and it’s now targeting sports campaigns and new product launches. In addition to this, the company has refined its team, its technology, and its vision. To that, the group has built a localized network in Indonesia and is seeking to develop and replicate its model in other jurisdictions which will support the topline growth of the company. As of now, SportsHero caters to the world’s largest sport, being soccer and cricket and focuses on to launch cycling by the end of 2018. By looking at its strategic movement towards business development via organic and inorganic routes, we believe that the group has a lot of potential to grow, underpinned by various tailwinds expected in the upcoming period. Moreover, the company issued 700,000 shares upon exercise of Options at $0.05 expiring 31 August 2019. Meanwhile, the stock has risen 68.83% in the past three months as at September 20, 2018 but fell about 38.10% in the past one month. It is worth noting that the stock was up by 128.07 percent in past one year. However, SHO is also making efforts to improve its ROE. It is respecting the support level at $0.13 while immediate resistance may be looked around $0.2. Its moving averages and other technical indicators demonstrate a decent momentum with many catalysts that may help going forward. Based on aforesaid facts and expectations, and current trading scenario, we give a “Speculative Buy” recommendation on the stock at the current market price of $ 0.140, considering long-term strategic fit and transformation initiatives which are underway.

 

SHO Daily Chart (Source: Thomson Reuters)

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