Supreme Ventures Limited Equity Analysis

To value SVL, we utilized two approaches, the Justified P/E, and a Dividend Discount Model (DDM). For both methods, we assumed a cost of equity of 11.43% which was derived from a “build-up” approach adding an equity risk premium to an estimate of the company’s cost of debt.

For the justified PE approach, we forecasted an EPS of $1.04 per share for the 2022
financial year. This compares with the Group’s latest earnings per share of $0.87
for the 2021 financial year. Key considerations that went into this EPS forecast
include continued improvement in the betting segment which was materially held
back by eternal factors in 2020 and some portions of 2021 as well as a slight erosion
of margins as the Group pays out a larger portion of prizes to stakeholders (greater winning pay-outs and horse purse fees, as well as a continuation of the elevated lottery pay-outs partially due to competitive forces as the Group aims to maintain market share). Utilizing the aforementioned cost of equity, an estimated payout ratio of 89.6% and a justified P/E multiple of 20.51x, we arrived at a fair value estimate of $21.32.

For our DDM valuation, we forecasted earnings further into the future, with 3 years of continued strong growth and improvement in the betting and lottery segment (which we would have seen in the group’s latest quarters) which then tapers off into our estimate of the long- term growth rate. This estimate was derived fundamentally by considering the Group’s return on equity over the last 4-years and the approximate pay-out ratio to arrive at a growth rate of 6.77%. From this 2-stage DDM, we derived a fair value estimate of $17.00. Utilizing an average of both results, we arrived at our final estimate of fair value, $19.16, which based on the current market price, implies that the Company is fairly priced. Considering the results of our valuation coupled with the details of the analysis provided above, we’ve issued a MARKETWEIGHT recommendation for SVL.