Sportech PLC proposes delisting following H1 2023 results
In a surprising turn of events, shares in Sportech PLC have plummeted by nearly 50 percent following the company’s proposal to delist from the Alternative Investment Market (AIM) of the London Stock Exchange. Sportech, an Edinburgh-based firm, is known for its operations in the US state of Connecticut, where it holds an exclusive licence for pari-mutuel wagering and has an agreement with the Connecticut Lottery Corporation for retail sports betting. The company also offers online pari-mutuel betting in Connecticut through Mywinners.com and extends its services nationwide across the US via 123bet.com.
Largest independent provider of pari-mutuel betting
Sportech is the largest independent provider of pari-mutuel solutions to the global betting industry. One of the key features of pari-mutuel betting is its transparency and the potential for bettors to win significant sums if their predictions are successful. It is a contrast to fixed-odds betting, where the odds are determined in advance and the potential payout is fixed at the time of placing the bet.In a pari-mutuel betting system, all bets are pooled together into a single prize pool, with the operator taking a percentage as its commission. As more bets are placed on a particular outcome, the odds will decrease, while the odds for other outcomes increase. The prize pool is distributed among the winning bets based on the final odds. This means that the size of the winnings depends on both the amount wagered and the odds at the time of the bet.
Mixed Outcome
Sportech’s decision to propose delisting came at the same time as its financial results for the first half of 2023. The company reported total half-year revenue of £13.5 million, with £12.7 million generated from its retail business and £894,000 from online operations. This represented a modest year-on-year increase of 1.4 percent. While the retail segment showed growth of 1.7 percent, there was a 2 percent decline in online revenue. Adjusted EBITDA for the period surged to £869,000, a significant improvement from the £311,000 recorded in H1 2022.
Half-year revenue amounted to £13.5 million, with £12.7 million generated from the retail business and £894,000 from online, reflecting a 1.4% year-on-year increase in constant currency terms, driven by a 1.7% retail segment growth and partially offset by a 2% decline in online revenue, while Adjusted EBITDA for the period surged to £869,000, a substantial improvement from £311,000 in H1 2022, although the overall business still reported a loss of £344,000, a decrease from the prior year’s £831,000 loss. (Source: SiGMA)
Loss for the period
Despite the positive strides in revenue and EBITDA, Sportech declared a loss for the period, amounting to £344,000. While this was an improvement from the £831,000 loss reported year-on-year, it still marked a setback for the company.
Delisting proposal
A comprehensive review followed assessing the pros and cons of maintaining the company’s status as a publicly listed company, Sportech is preparing to seek shareholder approval to cancel its shares on AIM and re-register as a private limited company. The review highlighted “significant burdens,” both financial and non-financial, associated with remaining a public company. In 2022, the cost of maintaining its public listing amounted to approximately £450,000, which significantly contributed to the company’s full-year pre-tax loss of £934,000 during that period. This cost represented around 28 percent of the company’s total adjusted EBITDA for the year.
Financial and regulatory factors
Sportech’s board discussed the financial costs, along with the legal and regulatory burdens of maintaining public status, outweigh the benefits of continuing to trade on AIM. They estimate that delisting and re-registration as a private limited company will substantially reduce recurring administrative and adviser costs by approximately £450,000 per annum. This, the board believes, can be redirected to better support and investment in Sportech’s business.
Lack of liquidity and strategy
Sportech cited several reasons for the proposed delisting, including a lack of liquidity for trading in its ordinary shares, which contributes to increased volatility in its share price. The board also pointed out that a private limited company can make and implement strategic decisions more swiftly than a publicly traded entity due to the more flexible regulatory framework that applies to private companies.
Shareholder vote
Sportech’s board is of the opinion that the cancellation and re-registration of the company’s shares is in the best interests of both the company and its shareholders. A circular detailing the background and reasons for the proposed delisting is set to be sent to shareholders in the second half of September. This circular will also include a notice convening a general meeting, where shareholders will have the opportunity to vote on the proposal. The resolution will require at least 75 percent of votes cast by shareholders to be in favor for it to pass.
Sportech’s decision
Sportech’s Executive Chairman, Richard McGuire, (pictured above), commented on the situation, saying, “Despite delivering improving operational results announced today, the substantial financial cost associated with maintaining a public listing, given our current scale, and the increasing volatility in the market valuation is adversely impacting net returns and future prospects. Regrettably, in light of these circumstances, we find it necessary to take the difficult but pragmatic step of proposing delisting from the AIM market today.”
This unexpected turn of events has certainly rattled investors and will be closely monitored as shareholders make their final decision on the outcome of the public listing in the coming weeks.
