BUY HOLD SELL – PointsBet (ASX: PBH)
PointsBet (ASX: PBH) provides a cloud-based wagering platform. It operates through three segments: Australia Trading, Technology and United States. Its product offering includes Fixed Odds Sports, Fixed Odds Racing and PointsBetting. PointsBetting is available on all sports across sporting leagues, allowing clients to increase their winnings from a bet based on the spread of the underlying contingency. Founded in 2015, PBH has grown rapidly since launching PointsBetting in Australia in February 2017. By March 2018, PBH provided a full-service corporate bookmaker offering in Australia, adding Fixed Odds Racing (September 2017) and Fixed Odds Sports (March 2018) to complement its PointsBetting product. Australia represents the highest per capita gambling expenditure in the world, with 64% of Australian adults estimated to participate in some form of gambling each year. As such the Wagering Industry in Australia is highly competitive and highly regulated. There is a significant market opportunity in the US, as a result of the Professional and Amateur Sport Protection Act (PASPA) being overturned by the US Supreme Court in May 2018. This has enabled individual states to introduce legislation to permit sports betting, including online wagering. In July 2018, PBH entered the US market by signing the New Meadowlands Agreement, giving it a commercial licence to operate as an online corporate bookmaker in New Jersey. PBH commenced taking bets in New Jersey in December 2018 and launched its brand and marketing campaign in January 2019. PBH has since entered into other agreements giving it the option (provided the relevant legislation is passed) or allowing it to offer online and mobile sports wagering in New York, Iowa, Colorado, Illinois and Indiana. PBH is led by an experienced management team, with a demonstrated track record in the wagering industry. In late April, PBH reported Q3 turnover of $268.7m vs $136.2m a year earlier. Active Clients grew to 106,046 vs 65,031 a year ago. The business also noted that Australian racing, which historically represents the majority of Australian revenue, has remained largely unimpacted by COVID-19. As at 31-Mar-20, PBH had $149.4m of corporate cash, the majority of which is held in USD. The company has no borrowings. Main Observations
- Not a great fundamental picture. ROE is negative for the foreseeable future, currently -34%. The company is in its infancy, so we also cannot be too critical.
- Revenue growth is what is attracting eyeballs, forecast to grow 38% in FY2 and 68% in FY3.
- EPS growth is uninspiring, up 30% in FY2 but expected to fall back into negative territory in FY3 and FY4.
- Limited coverage but the two surveyed by Thomson Reuters who cover it have a buy or strong buy recommendation.
- It is trading at a 14.7% discount to the average broker target price.
- The stock trades with relatively high volatility, weekly ATR as a percentage of price is 19.8%. In short, it typically moves ~20% in either direction every week.