Company Overview: SportsHero Limited, formerly Nevada Iron Limited, is an Australia-based social media company. The Company is engaged in developing real-time sports social prediction platform. The Company's SportsHero application is a social network mobile application dedicated to sports prediction. The SportsHero application 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 spans 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.
 

SHO Details

Robust Top-line growth in FY19: SportsHero Limited (ASX: SHO) is primarily engaged in the development of the sports gamification platform. As on October 4, 2019, the market capitalisation of SportsHero Limited stood at ~A$19.69 million. In FY19 (ended on June 30, 2019), Top-line (including other income) stood at US$4,63,791, exhibiting a significant rise of 2,653.9% as compared to US$16,841 in FY18. The operating loss after income tax for the year stood at US$2,276,625 as compared to 2018 figure of US$4,335,566. Moreover, for FY19, the company delivered the significant transformation that culminated with development and launch on both the Apple App Store and Google Play of the white label Kita Garuda mobile application for the Football Association of Indonesia (or PSSI).

On March 25, 2019, the company executed an exclusive multi-revenue stream digital partnership agreement with PSSI, which resulted in SHO developing Kita Garuda, which is an intelligent, engaging sports prediction digital platform offering a broad range of the revenue streams. It was added that the Indonesian market, as well as opportunity for the group to leverage PSSI’s significant fan base, happens to be an exciting opportunity, that PSSI and SportsHero might monetise. It is also worth noting that the company has a partnership with one of the world's most popular sporting leagues, Spain's LaLiga, as an exclusive Indonesian partner when it comes to the sports prediction category. During the quarter ended March 2019, the company executed binding agreements with Cross Bet Holdings Pty Ltd for the purpose of enabling the granting of Sports Bookmaker Licence in order to facilitate the Australian launch of the SportsHero pay-to-play sports prediction platform. It was further stated that conditional approval for granting of the licence, from the Department of the Attorney General and Justice Licencing, was received by Cross Bet Holdings Pty Ltd.

Considering the improvement in the key margins, focus towards the lower cost of capital and ability to pay the debts as and when needed, synergistic agreements, we believe that SHO can achieve its long-term growth objectives.
 

Statement Of Comprehensive Income (Source: Company Reports)

Top 10 Shareholders: The following table provides a broader overview of the top 10 shareholders in SportsHero Limited:

Top 10 Shareholders (Source: Thomson Reuters)

YoY Improvement in Key Margins: The company’s key margins have improved on a YoY basis in FY19, which reflects positive business momentum. In FY19, there has been an improvement in SHO’s net margin, gross margin, etc. The company stated that there are reasonable grounds to believe that SHO would be able to pay the debts as and when they become due and payable.  The company has no current intention to incur the debt funding on behalf of the group, which might help the company’s future growth prospects. Generally, lower debt on the balance sheet reflects a stable footing, and it gives the company an opportunity to focus on long-term growth prospects by making deployments towards strategic business activities. At the time of managing capital, the objective of management is to ensure that it continues as a going concern and to maintain the optimal returns to shareholders as well as benefits for other stakeholders, which could help in getting traction among the market participants. The company focuses on maintaining a capital structure, which ensures the lowest cost of capital available to the entity.


Key Metrics (Source: Thomson Reuters)

Working Capital Raised by Exercising Options: SportsHero Limited earlier made an announcement about raising of further $1,862,500 (before costs), after exercise of additional 37,250,000 options, which resulted in the introduction of Australian institutional and sophisticated investors to SHO’s register. The working capital which was raised by exercising the 37,250,000 options would be applied towards further development of white label mobile application, Kita Garuda, developed for the Football Association of Indonesia (or PSSI) and following grant by the Northern Territory Racing Commission of a Sports Bookmaker Licence, towards the Australian launch of SHO’s pay-to-play sports prediction platform.

SHO Enters an Underwriting Agreement: In the release dated August 2, 2019, SportsHero Limited announced that is has entered into an agreement with Veritas Securities Limited for the underwriting of 30 million unlisted SportsHero Options.  In accordance with underwriting agreement, SHO would be receiving not less than $1.5 million in the working capital (before costs), which will be applied towards the further development of ‘white label’ platform, ‘Kita Garuda’, developed for the Indonesian football association as well as the Australian launch of SHO’s pay-to-play sports prediction platform. It was further added that exercise of options results in no further expansion of the current fully diluted capital structure. After completion of raising of the underwritten amount and in the consideration for the provision of ongoing corporate advisory and professional services for the time period of 12 months, SHO has agreed to grant Veritas 20 million options each of which would be exercisable at $0.10 and would be expiring 2 years from their date of issue.

SHO Possesses A Decent Standing: The consolidated entity witnessed net loss from continuing operations amounting to US$2,276,625 and had net cash outflows from operating activities of US$1,854,220. The net cash outflow from investing activities stood at US$37,363 for the year ended June 30, 2019. The consolidated entity had net current liabilities amounting to US$1,162,990 as well as net liabilities amounting to US$996,600. The following image has been extracted from the company’s annual report:


Statement Of Cash Flows (Source: Company Reports)

The company stated that AU$428,333 was raised after an issue of 4,283,333 shares on July 24, 2019, and further AU$2,682,717 (before costs) was raised after exercise of 53,654,334 options each exercisable at the price of AU$0.05 and expiring August 31, 2019. The company is anticipating to maintain continued support from the shareholders as well as other financiers that have supported previous capital raisings to assist with the funding needs, which might arise moving forward. The company has the ability to curtail administrative, discretionary expenditure, and overhead cash outflows as and when needed.

What To Expect From SHO Moving Forward:  In accordance with the partnership agreement with PSSI, SHO has been appointed for the time span of three years (with option to extend for two further periods of three years) as PSSI’s exclusive provider as well as partner to build PSSI’s 1^st official platform, that includes apps which incorporate SHO’s gamified sports prediction platform, ticketing platform, live streaming, social media, merchandise/e-commerce, game highlights as well as player access.

With respect to the partnership agreement, parties have agreed that the net revenue from direct advertising would be splitting 70/30% in favour of the party that introduces the advertiser. Additionally, under the agreement, the revenue is generated from direct advertising, brand sponsorship, competition revenue, video streaming, match ticketing, eCommerce, and gamification-related ticket sales. Throughout the term of partnership agreement, PSSI would exclusively be providing rich content, which includes access to the video footage of games, events and features of Indonesian national teams and its players. To maintain or adjust capital structure, the company may choose to adjust the amount of dividends paid to the shareholders, return capital to shareholders, issue new shares as well as enter into joint ventures or sell assets. The company has no intention to go for debt funding, which might help in strengthening its balance sheet moving forward. Moreover, the company has been focusing on the lowest cost of capital, which can help the overall performance of the company in the long run.


Key Valuation Metrics (Source: Thomson Reuters)

Stock Recommendation: On July 1, 2019, the company made an announcement about the binding agreement with leading hyper-personalised video content provider, Linius Technologies Limited, through their respective wholly-owned subsidiaries. SHO secured rights to use the Linius technology in SportsHero app as well as other ‘white label’ solutions, which includes mobile application ‘Kita Garuda’. The integration of Linius technology into PSSI mobile app could increase the user engagement and viewer numbers for ‘Kita Garuda’ mobile app, which, in turn, might result in the generation of more substantive advertising revenue for PSSI and SHO. Besides this, SHO’s financials also improved over the past few years. Hence, in view of aforesaid parameters and decent outlook supported by synergistic partnership and agreements with the company, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.060 per share.


SHO Daily Technical Chart (Source: Thomson Reuters)

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