Stock Spotlight - Centrebet International (CIL)

Tomorrows Blue Chip Today
By Jason Fittler

Key Points
1. This stock is not affected by the horse flu.
2. High dividend yield forecast 6.2% fully franked
3. Has introduced phone betting overseas and is about to release in Australia.

Centrebet International Limited is a leading online wagering and gaming company in the region with a client base of over 60,000 active customers. The company was formed from the merger in 2003 of two of the pioneers in the Australian online wagering and gaming market, Centrebet Pty Limited and SportOdds.

At present it is a relatively small company with a market cap of $160 million. However, it has the potential to become a much larger company. We currently have a price target of $3.20 on the stock which is a full 75% above the current price of $1.84.

Our valuation is based on the every increasing market for online betting both within Europe and Australia. Coupled with the company having recently launched its mobile phone betting system, is looking to move into Victoria; and the small impact that the horse flu has had on the company’s profits, this is a company which could indeed grow into a big blue chip in the next 5 years.

As such I believe this is a great stock to buy now and hold for the long term, the good news is the lovely big dividend you will receive along the way. This sort of dividend return is rarely seen in a growth stock such as CIL which makes it an even better bet.

The forecast dividend for 2008 is 6.2% fully franked and for 2009 7.25%. Once you gross this up to take in account for the franking it is a return of 8.8% in 2008 and 9.3% in 2009 before factoring in any growth in the share price. These sort of returns alone justify holding the stock.

There are risks though and like any smaller company the risk level is increased due to the small size of the company. The key risks to the company are;
1) lower-than-expected win rates;
2) the loss of key personnel; and/or
3) the loss of licences due to regulatory issues.

Horse Flu
As the company derives around 50% of it income outside of Australia the impact of equine flu is greatly reduced.

Going mobile
A recent study by Juniper Research estimated global mobile phone gambling will increase from US$1.3bn in 2007 to around US$26bn by 2012. We have done no modeling on this potential, but it does appear the clear trend is strongly upwards.
We note that CIL already provides on-line gaming via mobile phone outside Australia and plans to have live mobile phone sports/race wagering in Australia before the end of 2007.

Next stop Victoria
We understand that a race and sports wagering licence remains on the radar in Victoria. Although CIL already has clients in the state, the absence of a licence currently precludes it from advertising there. We would view licensing in Victoria as positive for CIL.

This is not a sure thing but when you weigh up the risks I believe this investment is one to be in for the longer term. Online betting and mobile betting will only grow in the future and this company has positioned itself to take full advantage of the growth. I believe that this stock has the potential to be a blue chip stock one day but it will take time. I would recommend that you buy this stock and hold for the long term.

If you are interested in taking advantage of this opportunity please contact your advisor on 07 4771 4577.

This alert is intended as private communication to my clients. It does not constitute advice to any person. The views expressed here are those of the author and do not necessarily reflect those of ABN AMRO Morgan’s Limited. Advisors in this office may own shares in the companies named here.