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Global stocks Shares

Accor Brand Advantage Positioned Well for Upcoming Recovery in European Travel

Accor’s growing room share is being driven by an increased presence in higher-end luxury/upscale rooms, which were 29% of its total in 2020. This higher luxury presence diversifies Accor from its core economy/midscale exposure, which more directly competes against Airbnb and other alternative accommodations.

Accor sold a meaningful portion of its owned assets in 2018-19, leaving the remaining company with 96% of its rooms tied to asset-light franchisee and managed business as of the end of 2020, up from 58% of the mix in 2014. These asset-light rooms offer high returns on invested capital and contract lengths of 30 years that are costly to terminate, resulting in a switching cost advantage for the company. Additionally, recent asset sales have infused Accor’s balance sheet with several billion euros in cash, which provides the company enough liquidity to operate into 2022 at near zero revenue demand levels, even before tapping upon its remaining EUR 1.76 billion revolver or needing to raise financing.

Financial Strength

While the pandemic makes near-term industry travel demand uncertain, Accor’s financial health is far clearer. We calculate that since 2018, Accor’s disposal of owned assets and investments has provided between EUR 6 billion-EUR 7 billion in cash, which provides the company with enough liquidity into 2022 at near zero revenue generation, even before tapping the remaining availability on its EUR 1.76 billion under its revolver. Accor’s 2020 debt/adjusted EBITDA turned negative in 2020, as the pandemic stalled demand. This compares with 2019’s 4.5 times level. As demand fully recovers by 2023, we see Accor’s debt/adjusted EBITDA reaching 2.9 times in that year. Accor has suspended dividends and share repurchases until demand visibility improves, which we believe is being done out of extreme caution–not out of necessity.

Bulls Say’s

  • Accor’s mid-single-digit share of hotel industry rooms is set to increase, as the company controls about 10% of the rooms in the global hotel industry pipeline.
  • Accor’s recent investments (Fairmont and Raffles, Mantra, Mantis, Movenpick, and Atton) have diversified it in the attractive growth segment of international luxury brands.
  • Accor has sold its the vast majority of its HotelInvest (owned assets) portfolio in 2018-19 and Orbis and Movenpick owned portfolio in 2020, which leaves a more asset-light company with higher margins.

Company Profile 

Accor operates 762,000 rooms across over 30 brands addressing the economy through luxury segments, as of June 30, 2021. Ibis (economy scale) is the largest brand (38% of total rooms at the end of 2020), followed by Novotel (14%) and Mercure (15%). FRHI offers additional luxury and North American exposure. After the sale of the majority of HotelInvest (owned assets) in 2018-19, the majority of total EBITDA comes from HotelServices (asset-light). Northern Europe represents 23% of rooms, Southern Europe 21%, Asia-Pacific region 32%, Americas 13%, and India, Middle East, and Africa 12%. Economy and midscale are 74% of rooms.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks Shares

FactSet Performing Well Amid Bull Equity Market and Strong Investment Banking Activity

FactSet is best known for its research solutions, which include its core desktop offering geared toward buy-side asset managers and sell-side investment bankers. Research makes up about 41% of the firm’s annual subscription value, or ASV, but is FactSet’s slowest growing segment due to its maturity and pressures on asset managers. 

FactSet’s fastest-growing segments are its data feed business, known as content and technology solutions, or CTS (13% of ASV), and its wealth management offerings (11% of ASV). Rather than through an interface, users of CTS access data through feeds or application programming interfaces, or APIs. FactSet’s adjusted operating margins have been range bound (31%-36%) over the last 10 years as it continues to invest in new content and occasionally brings in new acquisitions at lower margins.

Financial Strength

FactSet has no net debt ($682 million in cash compared with $575 million in debt). FactSet’s balance sheet is arguably under-leveraged, and the firm has capacity for larger acquisitions. Before COVID-19, FactSet has not been shy about share repurchases and returning cash to shareholders. FactSet’s revenue is almost all recurring in nature and as a result it’s weathered the uncertainties of COVID-19 fairly well. FactSet’s client retention is typically over 90% as a percent of clients and 95% as a percent of ASV. FactSet also has low client concentration (largest client is less than 3% of revenue and the top 10 clients are less than 15%). In addition, compared with the financial crisis, FactSet has diversified its ASV from research desktops to analytics software, wealth management solutions, and data feeds.

Bull Say’s

  • FactSet has done a good job of growing organic annual subscription value, or ASV, and incrementally gaining market share.
  • FactSet’s data feeds business, known as content technology solutions, or CTS, and wealth management business represent a strong growth opportunity for the firm.
  • There’s been a flurry of large deals in the financial technology industry and FactSet’s recurring revenue would make it an attractive acquisition candidate.

Company Profile 

FactSet provides financial data and portfolio analytics to the global investment community. The company aggregates data from third-party data suppliers, news sources, exchanges, brokerages, and contributors into its workstations. In addition, it provides essential portfolio analytics that companies use to monitor portfolios and address reporting requirements. Buy-side clients account for 84% of FactSet’s annual subscription value. In 2015, the company acquired Portware, a provider of trade execution software and in 2017 the company acquired BISAM, a risk management and performance measurement provider.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks Shares

Aptiv Lowers 2021 Guidance on Chip Shortage and Lingering COVID-19 Effect; Maintaining $105 FVE

Aptiv’s high-growth technologies include advanced driver-assist systems, autonomous driving, connectivity, data services, and high-voltage electrical distribution systems for hybrids and battery electric vehicles. 

Aptiv’s ability to regularly innovate and commercialize new technologies bolsters sales growth, margin, and return on investment. A global manufacturing presence enables Aptiv to serve customers around the globe, capitalizing on the economies of scale inherent in automakers’ plans to use more global vehicle platforms. Lean manufacturing discipline and a low-cost country footprint enable more favorable operating leverage as volume increases. 

Aptiv enjoys relatively sticky market share, supported by integral customer relationships and long-term contracts. Engineering and design for the types of products that Aptiv provides necessitate highly integrated, long-term customer relationships that are not easily broken by competitors’ attempts at market penetration. New Car Assessment Programs are used by governments around the world to provide an independent vehicle safety rating that require the addition of ADAS features as standard equipment through the end of this decade. If automakers intend certain models to achieve a 4- or 5-star safety rating, some ADAS features must be part of that vehicle’s standard equipment to even qualify for certain rating levels.

Aptiv Lowers 2021 Guidance on Chip Shortage and Lingering COVID-19 Effect; Maintaining $105 FVE 11 Oct 2021 

On Oct. 11, Aptiv reduced 2021 guidance. Due to the microchip shortage and lingering effects of COVID-19, the company sees second-half 2021 global light-vehicle production at 38 million units, down 14% from its prior guidance that had assumed 44 million units

Management’s reduced 2021 guidance includes revenue in a range of $15.1 billion-$15.5 billion, down 6% at the midpoint from $16.1 billion-$16.4 billion prior guidance. The adjusted EBIT margin guidance range was lowered to 7.6%-8.4%, contracting 205 basis points at the midpoint from the 9.9%-10.2% prior guidance range. 

Aptiv could reach its previous revenue target given the firm’s substantial backlog but had anticipated sporadic customer production resulting in our margin assumption at the low end of Aptiv’s prior guidance. 

We maintain our $105 fair value estimate on the shares of Aptiv after reviewing management’s reduced 2021 guidance.

Company Profile

Aptiv’s signal and power solutions segment supplies components and systems that make up a vehicle’s electrical system backbone, including wiring assemblies and harnesses, connectors, electrical centers, and hybrid electrical systems. The advanced safety and user experience segment provides body controls, infotainment and connectivity systems, passive and active safety electronics, advanced driver-assist technologies, and displays, as well as the development of software for these systems. Aptiv’s largest customer is General Motors at roughly 13% of revenue, including sales to GM’s Shanghai joint venture. North America and Europe represented approximately 38% and 33% of total 2019 revenue, respectively.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks Shares

ADP migrating to new HCM platform to increase its profitability and retention

As of fiscal 2021, ADP has successfully migrated most of its small and midsize clients to its strategic platforms and will be migrating enterprise clients to its new HCM platform over the coming decade, as well rolling out its new underlying payroll and tax engines. While we expect platform migrations to ultimately result in higher retention and profitability, the forced migrations will likely create a catalyst for enterprise clients to reassess providers, temporarily hindering both metrics.

ADP faces fierce competitive pressure from nimble upstarts, legacy peers, accounting software and ERP providers. We expect new solutions will allow ADP to compete more aggressively on functionality, reduce software maintenance costs and provide scope for greater operating leverage, supporting margin uplift. However, we anticipate increasing competitive pressure will result in greater pricing pressure and force ADP to sustain high levels of investment to ensure the functionality of its product offering remains competitive. This investment is in addition to the continued investment in sales and implementation required to roll out new solutions and migrate clients. As such, we expect ADP’s price increases will be limited to about 0.5% a year, in line with recent growth but below long-term averages, limiting margin expansion to about two percentage points over the next five years.

We expect increased regulatory complexity, tight labor markets and growing adoption of hybrid work will underpin strong demand for ADP’s solutions supporting greater share of wallet and modest market share gains in the small and midsize market. This includes greater penetration of the outsourced payroll and HR model. However, we expect forced platform migrations to hamper ADP’s enterprise market share over the next decade before gradually recovering as the new platform is adopted in the market. In aggregate, we expect ADP’s overall market share to remain broadly flat for the five years to fiscal 2026 before gradual growth as platform migrations complete.

Financial Strength

ADP is in a strong financial position. At the end of fiscal 2021, ADP’s balance sheet was modestly geared with net debt/EBITDA of 0.1. During fiscal 2021, ADP almost tripled long-term debt to USD 3 billion to fund share repurchases and optimise its capital structure with low cost debt. We expect ADP’s annual operating income can comfortably cover annual interest expense on its debt at least 60 times over our forecast period. ADP also has access to short term funding facilities to meet client’s obligations rather than liquidating available for sale securities. ADP has returned over USD 18 billion of capital to shareholders during the eight years to fiscal 2021 through dividends and share repurchases. We expect ADP’s strong free cash flow generation will support a dividend payout ratio of about 60% over our forecast period. The balance sheet is robust, and ADP has ample scope to increase leverage to execute on bolt on acquisitions. 

Bulls Say 

  • ADP benefits from high client switching costs, a scale based cost advantage, intangible brand assets and a powerful referral network.
  • Despite facing fierce competitive pressures and undergoing forced platform migrations, ADP has retained high revenue retention and improved operating margins over the past decade.
  • ADP has a strong track record of returning capital to shareholders through dividends and share repurchases.

Company Profile

Automatic Data Processing, or ADP, is a provider of payroll and human capital management, or HCM, solutions servicing the full scope of businesses from micro to global enterprises. ADP was established in 1949 and serves over 920,000 clients primarily in the United States. ADP’s employer services segment offers payroll, HCM solutions, HR outsourcing, insurance and retirement services. The smaller but faster-growing PEO segment provides HR outsourcing solutions to small and midsize businesses through a co-employment model.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Shares Small Cap

Wesfarmers’ Offer for API Still Appears the Most Likely

Businesswoman pointing at diagram in her hands when explaining marketing trends to her team during online meeting

It then extended the brand to the Priceline Pharmacy franchise network as Australia prevents community pharmacies having corporate ownership. Priceline contributes around one quarter of API’s revenue but over 40% of gross profit. While the conversion of stores to include a pharmacy is beneficial for distribution volumes, these stores dilute margin due to more PBS sales, and consequently have contributed to a decline in operating margin since fiscal 2017. Offsetting this is often higher foot traffic and sales. Nonetheless, as guided by management, this conversion process has played out and we expect no margin drag going forward.

Priceline’s key growth strategies are increasing its contribution from online sales and leveraging its loyalty scheme, the Sister Club. However, we have concerns regarding these endeavours. Market statistics suggest the Australian health and beauty retail market is growing at a mid-single-digit pace, which provides an attractive opportunity for API at first blush.

Company’s Future Outlook

API is in a strong financial position with net debt/adjusted EBITDA of 0.2 times at fiscal 2020. We forecast the company to hold a net cash position through fiscal 2025 and comfortably afford a 70% dividend payout ratio and continue to expand its retail footprint. We project API to open roughly 10 net new Priceline stores and five net Clear Skincare clinics per year. We forecast a total of AUD 225 million in capital expenditures over the next five years, including AUD 50 million for a new distribution centre in New South Wales, and also factor in the final AUD 32.9 million payment for Clear Skincare still outstanding. Working capital management has improved over a number of years, effectively having the net investment in working capital to 4.4% of sales over the five years to fiscal 2020. We forecast investment to be roughly maintained at an average of 4.7% of sales.

Bulls Say’s

  • The Priceline and Clear Skincare offerings are relatively high-margin segments and pitched in the beauty and personal-care market which is growing at a mid-single-digit pace.
  • API’s Corporate Priceline stores offers higher margin and more product opportunity than the purely franchise business model of peers Sigma and EBOS.
  • Management has demonstrated that it is opportunistic and having deleveraged the balance sheet, is looking to invest for growth. Value-additive acquisitions could present upside to our fair value estimate.

Company Profile 

Australian Pharmaceutical Industries, or API, is a major Australian pharmaceutical wholesaler and distributor. In addition, it is the franchisor of the Priceline Pharmacy network and directly owns and operates stand-alone Priceline stores which sell personal care and beauty products. In an effort to diversify away from the highly regulated low growth and low margin pharma distribution business which contributes 74% of revenue, API is actively growing a consumer brands portfolio and also acquired Clear Skincare, a skin treatment chain. These two emerging businesses each contribute approximately 1% of revenue but are higher margin than the core distribution segment.

Source: (Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Increasing Our Fair Value Estimate for LPL Financial to $161

Advisors on LPL’s platform serve approximately 4% of wealth management assets in the United States. Through its ClientWorks portal, the company offers a one-stop solution for advisors that incorporates billing, account analytics, research, trading, and relationship-management tools. LPL aims to offer services to all advisors regardless of business model.

Production retention, which measures the percentage of advisor-generated revenue maintained from the previous year, has recently been over 95%. Recently, LPL has been making moves to improve its value proposition to advisors, with the rollout of a new online portal and the purchase, and subsequent integration, of Advisory World. Acquisitions of advisor networks have also been a source of growth, with the 2017 acquisition of NPH for $325 million and the wealth management business of Waddell & Reed in 2021 for $300 million showing that LPL is willing and able to buy growth outright when it makes sense to do so. 

Financial Strength

LPL’s financial strength is adequate. At the end of 2020, the company had $2.3 billion of long-term debt. With a debt/equity ratio of about 1.8 times, the company is fairly leveraged. The company also has about $1.9 billion of goodwill and intangibles on its balance sheet, so has no tangible equity. The bulk of its debt, about $1.4 billion, will come due in 2024, with the rest due the following year. With a debt/adjusted EBITDA ratio of around 2.5 times, LPL should have sufficient cash to meet these financial obligations.LPL has paid a consistent $0.25 quarterly dividend since first-quarter 2015. 

Our fair value estimate correlates to a price/forward earnings multiple of 22 times and an enterprise value/EBITDA multiple of 12.5 times. Positive adjustments to our fair value estimate include $6.50 from earnings since our previous valuation update, $20.50 from recent growth in client assets and higher projected growth in client assets, $10.50 from increasing the growth rate and assumed returns on capital after year 10 in our model, and $3.50 of miscellaneous adjustments.

Bulls Say’s

  • LPL has been able to weather the storm of a changing industry, and expanding margins suggest that its business model remains intact.
  • The company has been moving toward more recurring revenue, such as advisory fees and revenue from client cash balances, which the market may reward.
  • LPL has the resources to recruit aggressively, and improvements in feedback receptiveness should help it maintain strong retention rates.

Company Profile 

LPL Financial Holdings is an independent broker/dealer that provides a platform of proprietary technology, brokerage, and investment advisory services to financial advisors and institutions. The company also provides financial advisors licensed with insurance companies customized clearing services, advisory platforms, and technology solutions. LPL provides a range of services through its subsidiaries. Private Trust supplies trust administration, investment management oversight, and custodial services for estates and families; Independent Advisers Group offers investment advisory solutions to insurance companies; and LPL Insurance Associates operates as a brokerage general agency that offers life, long-term care, and disability insurance sales and services.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Technology Stocks

Twitter to Sell MoPub for $1.05 Billion; Maintaining FVE; Shares Fairly Valued

According to the firm, MoPub generated $188 million in revenue in 2020 (5% of total revenue), which makes this sale equivalent to 5.3 times revenue. Twitter is trading at more than 7 times our 2022 revenue estimate, excluding MoPub.

Company’s Future Outlook

Twitter said it plans to focus more on providing advertising opportunities for direct response marketers in addition to small- and medium-sized businesses. We think that this deal was also partially driven by questions surrounding how Apple’s IDFA and user privacy policies will impact in-app advertising. However, Twitter had also stated that some of its app ad offerings were already integrated with Apple’s SKAdNetwork that helps track and measure ads. Without MoPub, we expect slightly lower top-line growth and less margin expansion, both of which will not have a material effect on our $58 fair value estimate for the firm.

Twitter’s initial investment in MoPub  when it purchased the company in 2013 for only $350 million. However, cash received from this transaction likely will be offset by the $809.5 million charge that Twitter will recognize in the third quarter 2021 as the firm settled a case involving some of its investors who accused the firm of misleading them by providing lofty expectations of user count and engagement at an analyst day event in 2014. The event took place when Dick Costolo was at the helm at Twitter.

Company Profile 

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%).

Source: (Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks Shares

Supermarket Food Inflation Likely To Stage a Comeback in Fiscal 2022

We anticipate Coles and Woolworths to report food price deflation continued in the September quarter of 2021. However, we expect prices to reflate in the December quarter with food inflation to average 1.5% in fiscal 2022. We forecast higher prices to support the operating margins of supermarket operators, offsetting weak sales growth post-lockdowns. 

Morningstar’s proprietary Little Shopping Basket indicates prices were flat at Coles and declined by 1% at Woolworths in the September quarter 2021 versus the prior corresponding period against a backdrop of rising upstream costs, including cost pressures experienced by manufacturers of consumer-packaged goods, or CPGs.

Heading into the upcoming release of first-quarter fiscal 2022 sales figures in late October, we maintain our fair value estimates of AUD 24.00 and AUD 13.20 per share for narrow moat Woolworths and no-moat Coles, respectively. 

Although we estimate Woolworths dropped prices by more than Coles in the September quarter, our shopping basket was still cheaper at Coles than at Woolworths. Our average Coles basket was priced at a 2% discount to the average Woolworths basket consisting of identical items, suggesting Coles competed more aggressively on price.

 Large global suppliers have been sounding the alarm regarding inflationary pressures within their supply chains. 

Nonetheless, we don’t anticipate rising input costs to materially impact profit margins at Coles and Woolworth in fiscal 2022, as their suppliers are likely to partially internalise any inflation, and we expect the supermarkets to successfully pass on higher cost of goods sold to consumers in the form of low-single-digit price rises. Coles and Woolworths enjoy dominating positions within the Australian grocery retailing sector and can leverage buying power in their price negotiations with suppliers. Increasing the level of private label penetration also offers supermarkets the option to better manage the price of their baskets.

From fiscal 2024, we expect sales growth of the Australian food retailing industry to recover to a sustainable rate of about 4% annually, underpinned by food price inflation of 2.5% and population growth of around 1.5%. 

We also track a discount grocery basket, comparing private label product pricing at Woolworths, Coles, and Aldi. Our discount basket indicates prices were roughly the same at Woolworths and Aldi in the September quarter 2021, while the average private label product at Coles was priced at around a mid-single-digit premium, after adjusting for packaging sizes. 

We infer from our baskets differences in pricing strategies between the two majors. We conclude Woolworths aims to match Aldi on private label pricing, while Coles’ comparable private label range is less competitively priced. Rather, Coles seems to be focusing on matching Woolworths on its branded product range. 

However, we caution the readthrough from our baskets has its limitations due their small sample sizes. Morningstar’s Little Shopping Basket and our discount grocery basket each track only a small subset of products across the vast ranges stocked by Australian supermarket retailers. Also, over time periods shorter than a full year promotional cycle, differences in promotional schedules impact results.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Shares Technology Stocks

Marvell taking aim at cloud, 5G and automotive markets

Between data processing units, or DPUs, optical interconnect, and ethernet solutions, Marvell has one of the broadest networking silicon portfolios in the world, and we think it is primed to steal market share from incumbent Broadcom with bleeding-edge technology.

Marvell has exited its low-margin legacy markets of consumer hard disk drives and Wi-Fi chipsets to focus on its networking portfolio and used the acquisitions of Cavium, Avera, Aquantia, Inphi, and Innovium to expand out of its enterprise market niche into the rapidly growing data center and 5G markets.

Marvell’s recent financial history has been choppy as a result of CEO Matt Murphy’s aggressive overhaul of the business’ focus. Trends toward disaggregated networks and merchant silicon, as well as 5G and data center buildouts, would act as secular tailwinds for Marvell.

Financial Strength:

As of May 1, 2021, the firm carried $522 million in cash and $4.7 billion in total debt—largely taken on to acquire Inphi. Marvell is expected to exit fiscal 2022 with a gross debt/adjusted EBITDA ratio of 2.4 times, above its target of 2 times. As per the analysts, Marvell is expected to stay leveraged but to pay down debt as it matures.

The firm’s free cash flow generation is expected to ramp up toward $2 billion a year by fiscal 2026, up from just over $700 million in fiscal 2021, as it exacts material operating leverage with top-line growth.

The firm would be prudent to postpone any M&A until it returns below its debt/EBITDA target, following $11 billion spent so far in fiscal 2022 on Inphi and Innovium.

Bulls Say:

  • Marvell has best-of-breed data processing units and optical interconnect products that should allow it to benefit from the rapidly growing cloud and 5G markets.
  • We think the combination of Inphi and Innovium under the Marvell umbrella could give it a technological advantage to Broadcom in high-performance networking.
  • We expect Marvell to exact significant operating leverage as it incorporates acquisitions and adds volume to the top line.

Company Profile:

Marvell Technology is a leading fabless chipmaker focused on networking and storage applications. Marvell serves the data center, carrier, enterprise, automotive, and consumer end markets with processors, optical

interconnections, application-specific integrated circuits (ASICs), and merchant silicon for ethernet applications. The firm is an active acquirer, with five large acquisitions since 2017 helping it pivot out of legacy consumer applications to focus on the cloud and 5G markets.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Pointsbet Holdings delivered strong FY21 results with group revenue up by 159%

Investment Thesis:

  • U.S. growth opportunity– the U.S. online sports betting market continues to open following the 2018 supreme court ruling which legalise the industry. Market growth estimates forecast the industry to grow to US$51bn by 2033. 
  • Strong management team with a solid track record – the ability to grow market share in a competitive and mature market of Australia gives us some confidence the management team have the right strategy in place to build share in the U.S. 
  • Proprietary technology stack – The speed and usability are key differentiating factors. PBH operates proprietary technology, which it developed inhouse. This means new modifications and updates are easier to implement (i.e., more control) with inhouse tech versus outsourced (i.e., having to go to an external provider each time with an update). 
  • Cross sell opportunities with iGaming – PBH’s recently launched iGaming product (online casino) is already highlighting cross-sell opportunities to its customers.

Key Risks:

  • Rising competitive pressures
  • Adverse regulatory change in key operating jurisdictions (Australia / U.S.)
  • Loss of market share in key regions or growth rate fails to meet market expectations
  • Higher than expected costs – especially around investment in sales & marketing to drive market share
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility
  • Cyber-attack on PBH’s platform

Key highlights:

  • PBH’s FY21 results were largely in line with expectations, with group revenue up +159% to $194.7m and gross profit up +129% to $87.6m YoY.
  • The recently launched iGaming product represents another growth opportunity (backed by a strong management team), with management noting that ~71% of all iGaming players have placed an in-play wager and 40% of cash active clients have placed an iGaming bet since launch.
  • The more mature market of Australia still has room to grow, with PointsBet, the no. 5 player (by online market share) and management still targeting 10% online market share by 2025.
  • Group normalised EBITDA for the year was a loss of $156.1m vs loss of $37.6m in the pcp, as PBH continues to invest in the business to scale the U.S. business and invests in its technology stack.
  • Australian Trading segment reported revenue of $150.7m (vs $68.2m in pcp) and EBITDA of $9.2m (vs $6.9m in the pcp).
  • USA segment reported revenue of $42.3m (vs $7.0m in pcp) and EBITDA loss of $149.6m (vs loss of $38.2m in pcp). During the year, PBH operational in six U.S. states: New Jersey, Iowa, Indiana, Illinois, Colorado, and Michigan.
  • Balance sheet is in a good position to support investment in growth, with pro forma cash balance of $665.2m (post the July 21 capital raising).

Company Description: 

PointsBet Holdings Ltd (PBH), founded in 2015, is a corporate bookmaker with operations in Australia and the United States (New Jersey, Iowa, Illinois and Indiana). PointsBet has developed a scalable cloud-based wagering platform which offers customers sports and racing wagering products. PBH’s key products include fixed odds sports, fixed odds racing and PointsBetting.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.