GS update.
Buy

PointsBet Holdings

(PBH.AX)

3Q22 update: Inline revenue while cash burn/marketing better-than-expected; Buy

2 May 2022 | 4:16AM AEST

What's changed

PBH's 3Q22 update was run-rating broadly in line with our prior estimates, characterized by: 1) Aus Gross Win of A$78.8, up 44% vs. pcp run-rating at ~44% of our prior 2H estimates on seasonally softer 3q T/O skew, 2) Aus margins again surprised to the upside, with gross/net win margins of 14%/9%, 3) reiterated expectations of AUS hitting EBITDA positive result for the FY, 4) US growth continued, with Sports Gross Win A$46.1 mn run-rating ahead of our prior 2H estimates, and 5) US margins remained robust, with 3Q gross/net margins of 6/3% tracking better than expected. Further, despite the top line result, marketing spend was well contained, in particular in the US, with the reported US$33.2 mn (and CPAs <US$500) coming in significantly lower than GS/VA consensus expectations which in our view confirms recent industry feedback of a rationalized competitive dynamics in the US.

Earnings and valuation changes; Buy

Looking ahead, PBH notes it now expects to launch in further 4 states this CY, bringing exposure to 14 states plus Ontario (vs 17 prior), with a focus on optimising efforts around new OSB state openings. With that in mind we expect US marketing spend to be broadly similar in Q4 noting some prior investments incurred were earmarked for future launches. As such the cash burn profile into Q4 should improve particularly given some one-off items in Q3 such as the A$11 mn market access fee. On balance, we upgrade our FY22-24E EBITDA by 6-7% largely on lower costs and marketing spend. Overall, our 12m TP reduces to A$5.78 (from A$6.74) driven by a MtM of (lower) US peer multiples. While sentiment in the sector remains challenging (high growth/long duration), operating results remain solid and the MT opportunity remains intact. Stay Buy.