Posted on: December 22, 2022, 03:00h.
Last updated on: December 22, 2022, 01:57h.
Sports betting data provider Sportradar (NASDAQ: SRAD) will enter 2023 with new-found financial flexibility after the company prepaid a nearly $446 million term loan.
Not only does that early payment reduce leverage, it strengthens the Swiss company’s balance sheet while providing more leeway to boost free cash flow. Those are important traits at a time when analysts and investors are scrutinizing the debt levels and pathways to profitability for companies with direct ties to the sports wagering industry.
SRAD’s decision to prepay all of its floating-rate debt reflects a conservative move to avoid increased interest rates in 2022 and limited appetite, in our view, for transformational debt-funded mergers and acquisitions,” said Fitch Ratings in a recent report.
Integral to the Sportradar thesis is that the company prepaid the aforementioned level in advance of interest rates likely rising across Europe next year. With access to a $233.5 million credit facility, the data provider likely doesn’t need to pursue added financing in 2023.
Sportradar Firming, Risks Remain
Sportradar stock is down 45.76% year-to-date, confirming the name is tracking other sports wagering equities lower, and that its not yet a risk-free bet.
Sportradar provides data to sportsbook operators — an essential part of the wagering equation, particularly as the industry expands in the US. Because of its business model, Sportradar is tied to the growth of regulated sports betting, but it’s not as consumer spending-dependent as are traditional sportsbook operators.
While the company trimmed debt, analysts believe it needs to continue to be mindful of that trajectory and not get carried away with potentially costly consolidation activity.
“Fitch rates through economic cycles and has limited visibility on SRAD’s financial policy beyond 2023. This is due to a lack of commitment by SRAD to a leverage policy that is below our upgrade threshold to ‘BB,’ added Fitch. “The rating has greater leverage headroom following the prepayment but we expect M&A to remain a key component of SRAD’s growth strategy. A re-leveraging of the balance sheet could occur within the next two to three years if appetite for investment spending increases.”
Sportradar Upgrade Possible, but Not Guaranteed
Like so many gaming companies, Sportradar is saddled with a junk credit rating and it could be a while before it moves into investment-grade territory. Even so, an upgrade to a better part of the high-yield space isn’t out of the question.
We now expect funds from operation (FFO) leverage to be below our upgrade threshold in 2022. Operations in the US reported positive adjusted EBITDA for the first time since the IPO in the three months to September 2022,” concluded Fitch. “An upgrade to ‘BB’ could be possible with increased visibility of SRAD’s financial policy and Fitch-defined EBITDA margins (including amortization of sports rights) trending towards 20%.”
Sportradar is currently rated “BB-“ with no outstanding obligations.