Canaccord raises SGHC stock rating to buy, doubles price target

On Friday, Canaccord Genuity analyst Jason Tilchen upgraded shares of SGHC Limited (NYSE: SGHC) from Hold to Buy, significantly increasing the price target to $10.00 from the previous $5.00. The stock has already shown remarkable momentum, gaining over 15% in the past week and 131% over the last year. The upgrade follows Super Group's announcement earlier this week of its preliminary fourth-quarter results for 2024, which are expected to surpass previous guidance.

Super Group, the parent company of SGHC Limited, reported that both its ex-US revenue and adjusted EBITDA for the fourth quarter are anticipated to be higher than initially forecasted. With a robust EBITDA of $177.8 million and a healthy gross profit margin of 44.14%, the company demonstrates strong operational efficiency. The company had already revised its outlook upwards in early December due to strong performance in the first two months of the quarter. The positive trend continued through to the end of the year, culminating in a record-breaking December for customer deposits and total revenue. InvestingPro subscribers can access 8 additional key insights about SGHC's financial health and growth prospects.

The analyst noted that SGHC's impressive fourth-quarter growth is likely attributable to a mix of factors. These include favorable soccer outcomes in Europe and ongoing momentum in the African markets. SGHC's share price has seen a substantial increase, more than doubling over the past year.

Tilchen also pointed out that SGHC's valuation is particularly appealing at this time. This is due to the company's strategic exit from the US sports betting market, allowing it to focus on investing in regions where it can achieve sustainable growth. Super Group's effective performance in key emerging markets, especially across Africa, has contributed to the analyst's optimistic outlook.

The Canaccord Genuity analyst expressed confidence in Super Group's future, citing a "clear path to continued top line growth and consolidated margin expansion going forward." This positive assessment has led to the raised stock rating and price target, signaling a bullish stance on SGHC Limited's prospects. According to InvestingPro's Fair Value analysis, the stock is currently trading near its fair value. Discover comprehensive insights and detailed valuation metrics for SGHC and 1,400+ other stocks with InvestingPro's exclusive research reports.

In other recent news, SGHC Limited, a significant player in the online gaming industry, reported a strong financial performance for Q3 2024. The company's revenues, particularly from its ex-U.S. operations, saw a significant increase of 13% year-over-year, reaching €395 million. Additionally, SGHC Limited's Adjusted EBITDA rose by 52% to €95 million, maintaining a robust 24% margin for two consecutive quarters.

The company also reported a healthy financial position, ending the quarter with €297 million in unrestricted cash and no debt. SGHC Limited is focusing on expanding its presence in African markets, which have shown promising growth potential.

The company's Q3 performance was marked by robust growth in its international markets, particularly outside the U.S. SGHC Limited's decision to shut down its U.S. sportsbook operations has allowed it to redirect resources towards more profitable ventures, such as its growing presence in Africa and Canada.

Looking ahead, the company has revised its ex-U.S. Adjusted EBITDA guidance to exceed €345 million, indicating confidence in continued growth. It targets a margin of 22-24% in 2025 and is exploring further expansion in African markets. Despite the strong performance, the company faces potential challenges such as regulatory issues in emerging markets, increased competition from global gaming operators, economic volatility in key markets, and dependence on technology infrastructure.

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