Recommendation	Price Target and Rating History

30/03/2021BuyTarget Price $14.90on -- Goldman Sachs PointsBet Holdings (PBH.AX):...

22/1/2021 Close$15.55 PBH 10.56

We view PBH's 4Q21 update (first takehere) as encouraging, in particular across the US where we note Q4 net win performance was significant ahead of GSe and the market, which we believe should provide investors with comfort around the medium to long term US TAM opportunity. Specifically we note i) Australia result was broadly in line, with softer turnover performance vs. GSe in the quarter of A$495 offset by much better gross and net win margins of 13%/9% respectively (GSe was 12%/8.5%), ii) US gross/net win margins of ~5%/2% across FY21 were ahead of prior GSe at 4%/1%, iii) Such that US net Win for FY21 was ~68% ahead of GSe, iv) whilst the A$400 mn raising announced was not in our prior forecast (given PBH's current net cash position and our numbers not reflecting any near term regulatory/legislative developments), we see it as medium term positive given the potential opening of the Canadian market and PBH's newly announced target of being operational in 18 states+Ontario by end of CY22 (vs. 6 states currently).

Earnings and valuation changes

Overall our FY21-FY23 EBITDA forecasts are lowered on i) higher opex and marketing cost given PBH's plans to launch in new states, offset by ii) improved margin trajectory of Australia/existing US states, and iii) higher US revenues. Our outer year forecasts remain largely unchanged. As a result, our 12mo TP (SOTP and M&A based, method unchanged) shifts to A$14.90 from A$17.20, driven by i) our earnings changes, ii) A$400 mn raising (institutional offer completed, retail offer fully underwritten), and iii) higher near-term EBITDA losses from its launch into new states. Stay Buy on PBH.

Reiterate Buy on PBH

Reiterate our Buy rating on PBH, with our thesis underpinned by i) PBH's leverage to the burgeoning US Sports Betting and Gaming market which we forecast to be a >US$50 bn TAM opportunity at maturity with Canadian potentially >C$3bn, ii) our view that PBH is well-placed to achieve 10% share in states it operates in, iii) upside risk to long-run sustainable margins in Aus and the US, iv) Scalability benefits ahead noting positive impacts from the NBCUniversal deal to come/iGaming launch leveling playing field vs. peers, and v) strong management team and execution track record. Stay Buy. Next catalyst: FY21 result expected later this month.

4Q21 trading update: Key takeaways

Below we highlight the key takeaways from PBH's 4Q21 update:

• US 4Q21 turnover of A$482 mn was up c.1000% on pcp, taking FY21 turnover to A$1.8 bn. Further, gross/net win margins of ~5%/2% across the FY were tracking well ahead of prior GSe at 4%/1% respectively.

• As a result, US Net Win for the quarter came in at $16 mn, implying $42 mn for FY21, well ahead of our prior $25 mn forecast for the full year, a 68% beat.

• AUS turnover in 4Q was A$495 mn, taking FY21 turnover to ~A$2bn. On the margin front we note that 2H21 implied gross and net win margins were 13/9%, which was well above our prior 12%/8.5% estimate respectively.

• At the group level, whilst combined turnover of ~1bn in the quarter was softer than GSe, group net win of A$60.8 mn was significantly ahead of our implied $35 mn forecast. On a full year basis, the A$207 mn net win number compares to our estimate of A$195 mn.

• Total active clients on a 12m rolling basis stood at 196.6k in Aus and 195.3k in US in Q4.

• On iGaming, management noted that there are plans to launch in Pennsylvania and West Virginia in FY22 (pending regulatory approval), while having secured iGaming access in Ohio, Indiana, Missouri, Louisiana and Iowa.

• Michigan launch since beginning of May generated ~1.5 mn in revenues for Q4.

• With respect to Canada, PBH believes Ontario will go live in late 2021 (5th largest NA jurisdiction), with further provinces to follow. The company has also made a number of hires to build out its Canadian management team.

• PBH introduced a new target to be operation in 18 US states (6 currently) and Ontario by end of CY22, and called out near term existing access in states such as Arizona (seehere), Pennsylvania, West Virginia, Tennessee and Maryland.

• On CAC, management noted that all states were <US$500 mn in the quarter except Illinois given in person sign up impacts (broadly consistent with our recent analysishere).

We are Buy rated on PBH. Our 12-month target price of A$14.90 is based on an 85% weighting to our fundamental valuation (SOTP based) and 15% weighting to our M&A valuation (A$16.50; M&A rank 2, medium probability). Key downside risks are: (1) any adverse regulatory changes in US/AUS, (2) lower-than-expected US TAM opportunity, (3) higher-than-expected competition and costs in US, and (4) Cyber security/tech risk.

Desmond Tsao, CFA

+61 2 9320-1414

[email protected]

Goldman Sachs Australia Pty Ltd

Kane Hannan, CFA

+61 2 9320-1419

[email protected]

Goldman Sachs Australia Pty Ltd

Benjamin Rada Martin

+61 2 9320-1002

[email protected]

Goldman Sachs Australia Pty Ltd

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