The injection of fresh equity into PointsBet by a new strategic partner will reduce the need for PBH to raise further equity in the next two years. SIG Sports Investments also brings new technology to complement PBH’s existing capabilities.
PBH has issued ~$94 million of shares to a new investor, SIG Sports Investments (SIG). The issuance of 38.75 million new shares at $2.43 per share gives SIG a stake of approximately 12.8% in PBH and it becomes the largest shareholder. Together with PBH’s other strategic partners, Penn National (5.5%) and NBC Universal (3.3%), PBH’s register now has about 22% allocated to strategic investors.
SIG brings more than just fresh equity to PBH. SIG MD Jeff Yass said: “After several years of thoroughly evaluating the North American sports betting market for the right partner, SIG Sports is pleased to have made what we consider to be a long term investment in PointsBet.” This is a strong endorsement of PBH’s technology, products, and management, in our view.
SIG will provide its Nellie Analytics services to PBH’s European business (PBE, formerly Banach). This arrangement will be free of charge for 9 months with a view to locking in a commercial agreement. Nellie Analytics is (conveniently) based in Ireland, as is PBE, and will bring its expertise in mathematics, gaming, and technology to enhance PBE’s already market-leading technology with a focus on in-play betting in the North American sports betting market.
PBH has announced a Deferred Bonus Equity Option (DBEO). This is a pro-rata deferred scheme that, at the company’s discretion, could potentially raise up to $150 million over the next two years to July 2024. Eligible shareholders will receive 1 DBEO for every 20.2 ordinary shares held for nil consideration. Each DBEO will allow the purchase of $10 of PBH shares at a 20% discount to the applicable VWAP price, if triggered by PBH.
The SIG placement boosts PBH’s FY22f cash balance to about $443 million. This will be sufficient capital to cope with an estimated quarterly cash burn of $70 million in FY23f as PBH continues to ramp up its North American sports betting business.
We assume that PBH will trigger the DBEO in 1H24f for potential further investment. This could include a substantial entry fee into the Californian market once legislation is passed.
Under this scenario, PBH is unlikely to need additional equity in FY23-24f. We also expect positive free cash flow from FY25f onwards which would further reduce the need for more equity.
Investment view
The North American sports betting market could reach US$42 billion and the iGaming market US$18 billion by 2033. We think PBH can achieve a 4% share of our estimated market size of US$35 billion by 2030.
PBH has a strong edge in its technology base, now further boosted via the SIG investment.
PBH also has licences and operations in multiple US states with more to come as the individual states progressively legislate for sports betting and iGaming.
PBH also has some valuable partnerships, particularly with NBC Sports, the country’s largest sports media business.
Risks to investment view
The development of the North American sports betting markets is highly competitive and subject to new legislation on a state-by-state basis. Consumer demand for sports betting may not reach the levels anticipated.
Recommendation
We have retained our Buy recommendation.
