This article has been written on 26th of October, by an expert contributor Layton Membrey from Marcus Today
Overview
PointsBet Holdings (PBH) released its first-quarter activities report this morning, with a turnover of $1.16bn vs year-ago $979.9m.
The company had a great quarter of growth in the US compared to the previous year. Turnover was 50% higher vs the previous comparable period, although was down 24% on the previous quarter. The group’s biggest cost for the quarter was the advertising and marketing spend, which totalled nearly $55m. For the quarter, net cash outflows were $60.7m and total corporate cash and cash equivalents at the end of the quarter were $412.0m.
PBH also announced some key milestones during the quarter, including a streaming partnership with IMG Arena, the launch of online sports betting in Kansas and Louisiana, and the first retail sportbook bet in Maryland. In October, the group also announced the 1st Technology United States horse racing partnership, and recently the company ranked third overall in sportsbooks app-by-app testing.
The betting platform sits behind FanDuel and Draft Kings, which are the two main betting platforms for American sports. However, there are 40 online betting competitors in the US, so the competition is very high. A point of concern is also the marketing spend split between the geographical areas, with $25.2m spent in Australia, $US22.8m in the US and $C5.5m in Canada.
Fundamentals
The chart paints an ugly picture, the stock has been in a downward trend since reaching a high of 1760c in February 2021. It is now trading at 206c and is not showing signs of bottoming. The stock is still well within its growth phase, targeting expansion into the US market. Revenue growth is expected in 3 of the next four years, but it’s outpacing EPS growth in each of those years. The group hasn’t traded on a positive PE, which indicates the extent of the overshooting from the company when it reached the high early in 2021.
Broker Stuff
There isn’t a lot of broker research for PBH, Credit Suisse and Ord Minnett are the only two with research following its trading update in July. Both have neutral recommendations, and their target prices are 55% and 36% above the current share price, respectively. Credit Suisse says it expects patient investors will be rewarded, with the North American iGaming and Sports Betting markets so large, investors will benefit, even without buying in early.
Conclusion
PointsBet is set with a tough task, targeting growth in the US, where they currently hold only 4% of the US betting market. But this is a market that Goldman Sachs has projected to grow from $US900m to $US39bn by 2033. The downward trend since hitting its all-time high hasn’t shown any signs of breaking and is only just beginning to slow around the 200c level. The fundamentals don’t offer any reason to enter the stock at his level. Investors who hold the stock are now faced with the dilemma of whether to sell or hold. At current levels, the risk looks to be to the upside, and as the brokers suggest, patient investors will likely be rewarded. The stock has shown it is a relatively resilient stock in periods of economic downturns, people will always bet. Given the current valuation, it’s a HOLD, and I would require a significant bottom or shift in the trend to be convinced to put money in.
More about the author – Layton Membrey
Layton Membrey has been working with the Marcus Today Stock Market Newsletter since 2021. He is currently undertaking a Master of Commerce specialising in Finance at Deakin University, which he will complete in 2023. Under the guidance and expertise of Marcus and Henry, he has been able to develop an investment style that reflects a combination of their technical and fundamental values.
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First published on 25th October 2022 on the Marcus Today website.