Beaten down Score Media stock looks interesting: Bruce Campbell

Looking to place your bet on Score Media and Gaming (Score Media and Gaming Stock Quote, Chart, News, Analysts, Financials TSX:SCR)? Hold off a bit longer and you may have a winner on your hands, says Bruce Campbell of StoneCastle Investment.

“If you went back and looked at the valuation of Score back in mid-February, it was way overdone,” says Campbell, president at StoneCastle, who spoke on BNN Bloomberg on Tuesday. “At this point in time, it’s probably getting to a better entry point.”

“We don’t own it. We did own it and we actually got stopped out and the same with our position on Bragg Gaming. We’re watching both of them because we think it’s an interesting sector and a growing sector, so we’ll watch for the right time and probably enter into one or both of them,” Campbell said.

Score Media is the Canadian developer of mobile sports applications which runs the well-known sports scores, news and stats app, theScore, and more recently has grown a sports betting business currently online in New Jersey, Colorado, Indiana and Iowa.

Like the rest of the industry, the company had a rough 2020 with professional sports going dark for a good chunk of the year. Score posted fiscal 2020 (year end August 31) revenue down 33 per cent year-over-year to $20.7 million, which it followed up with fiscal Q1 2021 revenue down eight per cent.

But with the return of pro sports this year — albeit with truncated seasons and COVID-related disruptions — Score Media’s business has picked it up of late. Last month, the company released fiscal Q2 results which while still down year-over-year showed a lift in user engagement with Score’s platforms, with overall quarterly revenue hitting $5.6 million compared to $6.7 million a year earlier.

“Second quarter handle of $81.6 million on theScore Bet grew 491 per cent year-over-year and 46 per cent over the first quarter,” said Chairman and CEO John Levy in a press release. “We also recorded our highest-ever second quarter media revenue, with 17 per cent year-over-year growth driven by our compelling content as well as our outstanding North American reach and audience engagement.”

But the stock has been a real downer in recent months, shedding a full two-thirds of its value since mid-February. Campbell said it was a matter of too much too soon, as the pullback came after a huge run by SCR where it was a seven-bagger between November and February. The market had had enough, Campbell said, and is now less interested in fuelling the fire for potential growth stories in online betting.

“We don’t own a lot in the traditional sports betting area. We own a couple of companies that are in the eSports and eSports Betting areas, but if you look at what happened to Score Media — and you can throw Bragg Gaming in there as well — and you look at when the stock prices peaked out, it was really that beginning of the year to mid-February timeframe,” Campbell said.

“There was obviously a lot of enthusiasm about some of the new jurisdictions, Canada being one of them, and the fact that they were going to change the some of the gaming rules. And Score ran up quite a bit,” he said. “If you look at the US and what was happening there, that there’d be some new legislation changes that would allow some of these companies to come in.”

“At the same time the market was obviously really frothy, back [when] the daily conversation was on GameStop and how the Reddit traders were moving that stock around,” Campbell said. “And since that time, the market has really changed the characteristics of what it’s looking for.”

Canada took a step forward last month when the House of Commons passed Bill C-218, the Sports Betting Act, which would allow single-event sports betting (Canada currently allows only parlay or multi-event betting in a restricted form). The bill still has to be passed by the Senate.

The event turned out to be not much of a catalyst for SCR, however, as the stock has continued its downward movement in recent weeks, but Score Media called the bill’s passing a major step in what it called a potential market of between US$3.8 billion and $5.4 billion.

“We commend the members on all sides of the House of Commons for quickly passing this much-needed legislation. Today’s development is a major step forward and we are increasingly encouraged by the widespread industry and strong cross-party support that Bill C-218 has garnered. Now that Bill C-218 has been passed by the House, we look forward to the Senate swiftly carrying the ball over the goal line,” commented Levy in an April 22 press release.