Investment Thesis

• U.S. growth opportunity – the U.S. online sports betting market continues to open following the 2018 supreme court ruling which legalizes 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 has 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. 
• Deeply discounted capital raising.

Key Highlights: Relative to the pcp and on a constant currency basis: 

• The Group’s net win for the year was $309.4m and net revenue of $296.5m, which was up +52% YoY.
• Group gross profit of $121.6m was up +39% YoY, however gross profit margin was down to 41% from 45% due to a lower gross profit margin in the Australian trading business due to higher taxes and product fees, including an increase in the point of consumption tax in Victoria from 1st of July 2021. Also impacting margin was product mix with a higher contribution of revenue from betting events which attract higher product fees. 
• Group sales and marketing expenses were up +38.7% YoY to $236.8m, with U.S. marketing up +36% to $162.6m, Australia up +20% to $61.5m and $12.8m for Canada. Management highlighted that they saw an aggressive uplift in competitor marketing spend in the US. In FY23, management does not expect U.S. marketing expense to exceed FY22 levels in the U.S. and will look to regionalize marketing expense and reduce spend in some of the less targeted acquisition channels. In Australia, FY23 marketing expense is expected to be slightly higher than FY22 levels. In Canada, FY23 marketing expense is expected to run annually at a quarterly rate similar to the Q422 marketing expense of C$7m. 
• The Australian trading business reported net revenue of $195.2m, up +30% YoY and EBITDA of $7.7m was down -16.3% due to lower gross profit margins and higher marketing expense. 
• U.S. trading business reported net revenue of $98.7m, up +133% YoY, and an EBITDA loss of $197.4m versus loss of $149.6m in the pcp, which was primarily driven by the U.S. marketing expense as PBH expanded operations across 10 U.S. states and grow U.S. based team. Management noted the progress they made during the year.
• Corporate costs of $25.6m were significantly higher than $12.4m in the pcp due to higher employee benefits, listing costs, capital raising costs and start-up costs for Canada.
• Group normalized EBITDA loss over FY22 was $243.6m versus a loss of $156.1m in the pcp – that is down – 56% YoY. Loss for the year was $266.9m versus $164.9m in the pcp. 
• Balance sheet – the Company raised $400m via equity raising and a strategic placement of $94.2m to SIG Sports Investment Corp in Jun-22. The Company is adequately funded to execute on its strategy in the near term with a cash balance as at 30 Jun-22 of $473m.

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 Points Betting.

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Investment Thesis

• Solid market share in Australia and growing presence in Asia. Hence provides attractive exposure to both developed and emerging markets’ growth. 
• Valuation is fair on the forward estimates. 
• Management appears to be less focused on acquired growth going forward, which means there is a less of a chance for the Company to make a value destructive acquisition.
• Reinstatement of the dividend is positive and highlights management’s confidence in future earnings growth. 
• Focusing on sustainable packaging in an environmentally friendly market.

Key Risks

• Competitive pressures leading to further margin erosion. 
• Input cost pressures which the company is unable to pass on to customers. 
• Deterioration in economic conditions in Australia and Asia. 
• Emerging markets risk.
•  Poor acquisitions or not achieving synergy targets as PGH moves to reduce its dependency on packaging for food, diary, and beverage clients to more high growth sectors such as healthcare.
•  Adverse currency movements (purchased raw materials in U.S. dollars)

Key Highlights: Relative to the pcp and on a constant currency basis: 

• Revenue of $1,838m was up +4%, driven by solid demand for sustainable packaging and recycled products.
•  FY22 underlying EBIT was in line with guidance provided at 1H22. However, underlying EBIT of $156m, was down -15%, with EBIT from Packaging & Sustainability of $110m, up +5% more than offset by declines in Material Handling & Pooling underlying EBIT of $50m, down -8%, and Contract Manufacturing underlying EBIT, which saw a loss of -$4m (versus $24m in the pcp).
• Underlying NPAT of $70m was down -25% largely due to the absence of one-off revenue in the Contract Manufacturing segment recorded in FY21. Reporting NPAT of $12m was significantly down – 86%. 
• The Board declared a final dividend of 1.5cps, franked to 65%, which brings FY22 total dividend to 5cps, down -55% and equates to a payout ratio of 25% of underlying NPAT. 
• PGH acquired Synergy Packaging for ~$20m which adds to sustainable health and beauty packaging. 
• PGH began operations at Circular Plastics Australia (PET) recycling facility in Albury-Wodonga with international food grade certification in place and producing recycled resin for joint venture partners. 
• PGH maintained gearing of 2.7x, within its target range, with net debt at $561m, $24m lower than pcp, and operating cash conversion of $253m. 
• Packaging and Sustainability. The segment achieved reported revenue of $1.209 billion, up +7% and underlying EBIT of $110m, up +5%, despite tough trading conditions, driven by strong results in the New Zealand dairy and fresh food businesses, large format industrial packaging in Australia, and contract wins in the Asian closures business. 
• Materials Handling and Pooling. The segment saw reported revenue of $354m, up +3% but a decline in underlying EBIT of -8% to $50m. A strong performance in Pooling which saw volume growth against the backdrop of supply chain challenges, and growth in Infrastructure business was offset by a slowdown in activity in Sulo mobile garbage bin business as local councils delayed tenders for bin contracts.
• Contract Manufacturing. As previously advised in 1H22 by management, the segment reported a decline in revenue of -5% to $306m and underlying EBIT loss of $4m, with the segment impacted negatively in 2H22 by elevated raw material pricing, supply chain costs, and lower volumes.

Company Description

Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother-in-law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs, and manufactures packaging (plastic resin and steel) for many products in the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors.

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.