Efficiencies In Australia, Canada And iGaming Will Spark Positive Outcomes

Key Takeaways

• Strategic focus on gross profit efficiency and iGaming activities improves margins, enhancing profitability in Australia and Canada.
  
• The partnership with MIXI and increase in active users indicates potential for immediate value realization and sustained revenue growth.
  
• The acquisition by MIXI limits growth prospects as PointsBet transitions from public trading, and tax changes and reduced marketing expenses pose further risks to profit margins and future growth.

Catalysts

Provides sports, racing, and iGaming betting products and services through its cloud-based technology platform in Australia.

• PointsBet's strategic shift towards enhancing gross profit efficiency in Australia is showing progress, with gross profit growing 11% and generosity efficiency improving from 30% to 24%. This is likely to positively impact net margins due to more efficient revenue generation.
  
• The entry into a Scheme Implementation Deed with MIXI is expected to provide cash consideration for shareholders at a premium price, signifying potential immediate value realization and market recognition of future growth prospects, impacting overall earnings positively if executed successfully.
  
• Record growth in cash active users, particularly a 49% increase in Canada, signifies potential for sustained revenue growth driven by a diversified and expanding customer base.
  
• Increased focus on higher-margin iGaming activities in Canada, particularly slot games, suggests potential for improved future earnings and gross profit margins due to the shift towards more profitable gaming activities.
  
• Improved marketing efficiency in both Australia and Canada, with expenses decreasing while maintaining growth in global actives, indicates potential for improved net profit margins due to reduced costs relative to revenue growth.

PointsBet Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PointsBet Holdings's revenue will grow by 10.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -10.7% today to 7.7% in 3 years time.
• Analysts expect earnings to reach A$26.4 million (and earnings per share of A$0.05) by about May 2028, up from A$-26.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.7x on those 2028 earnings, up from -13.5x today. This future PE is lower than the current PE for the AU Hospitality industry at 20.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

PointsBet Holdings Future Earnings Per Share Growth

Risks

• The acquisition of PointsBet Holdings by MIXI might limit the potential share price growth, as shareholders are being offered a cash consideration of $1.06 per share, representing a fixed premium, and once the scheme is implemented, PointsBet will no longer be a publicly traded company impacting stock value growth. [Share Price]
  
• The Canadian trading business experienced negative impacts due to customer-friendly results, translating to a lower net win by approximately $3.9 million, which affects PointsBet's earnings and demonstrates vulnerability to variability in customer outcomes. [Net Win/Earnings]
  
• Marketing expenses decreased by 11% in Australia and 9% in Canada, which while improving short-term cash flows may risk long-term growth if the reduced marketing spend impacts the acquisition of new customers or the retention of existing ones needed for future revenue growth. [Revenue/Net Margins]
  
• The company's dependency on sustaining gross profit margins amidst tax policy changes, such as the Victoria Point of Consumption tax increases, suggests susceptibility to regulatory changes that may erode net margins despite increased efficiencies. [Gross Profit Margin/Net Margins]
  
• PointsBet is in the process of transitioning to positive cash flow, but this is contingent on achieving seasonally stronger H2 EBITDA and maintaining growth momentum, which presents a risk if market conditions or operational efficiency falter. [Cash Flow/EBITDA]

Valuation

• The analysts have a consensus price target of A$1.012 for PointsBet Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.1, and the most bearish reporting a price target of just A$0.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$344.5 million, earnings will come to A$26.4 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of A$1.1, the analyst price target of A$1.01 is 8.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.