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What’s the outlook as PointsBet launches $303 million capital raise

We examine the key details and implications of the company’s capital raise.

(ASX: PBH) Source: Bloomberg

Online sports betting company PointsBet Holdings (PBH) yesterday provided the market with details behind its planned $303 million capital raise. This raise – revealed concurrently with PBH's FY20 results – comes after the company revealed a ‘game changing’ partnership with NBC Sports last week.

Under that partnership, PointsBet is set to become the Official Sports Betting Partner of NBC Sports – giving the company access to NBC's approximate 184 million viewers and 60 million monthly active users.

Though currently in a trading halt while the raise is completed, PBH last traded at $13.69 per share.

Details of the raise

Centrally, PointsBet is looking to raise around $303 million in fresh capital – made up of a fully underwritten entitlement offer ($153.2 million) and an institutional placement ($150 million).

Under the entitlement offer, eligible shareholders will be able to subscribe for 1 new share for every 6.5 shares currently held. The offer price for these shares is $6.50 per share – representing a significant discount to PBH’s last traded price.

Moreover, for every 2 new shares issued under the offer, shareholders will receive 1 new option, with an exercise price of $13.00 per share. These options have an expiry date of 30 September 2022.

By comparison, the placement, set to be completed through a bookbuild, opened after the market close on Wednesday and is set to be completed this Friday.

The price of the placement shares will be determined once the bookbuild is complete.

Use of the funds

Centrally, the company said it would use the proceeds from the raise to fund US marketing costs, with a specific focus on client acquisition and retention; further develop the company’s technology and sports betting platform; as well as undertake US business development.

Funds from the capital raise would also be used to pay for the costs of the raise itself.

The outlook

Commenting on today’s announcement, the company’s CEO and MD Sam Swanell said: 'The Capital Raising will position PointsBet for the future.’

This raise, though significant, appears to be a prudent move, given that under the partnership with NBC, the company has agreed to a five-year marketing spend of US$393.1 million. Ultimately, with the company having $144 million in cash by the end of fiscal 2020 – the majority of which is denominated in USD – today’s capital raise forms an important foundation in assisting PointsBet with its broader US expansion plans.

Speaking to PBH’s US expansion plans, analysts from Bell Potter said:

‘The key risk that they will lose money with the expenses to enter a new market, but the longer term objective is that you acquire a sufficient scale to have a profitable business.’

The company recorded a loss of $41.5 million in FY20.

Looking forward, in the wake of the initial NBC Sports announcement, analysts from Ord Minnett argued that this partnership represents ‘a significant opportunity for PointsBet to take a significant leg-up in brand awareness, and ultimately market penetration, assisted by the market leading presence of NBCUniversal.’

More broadly speaking, the broker viewed PointsBet’s FY20 results positively – arguing that:

‘The financial result was slightly better than we had anticipated, due to lower costs, which bodes well for consensus forecasts for FY21 onwards.’

PBH current has an average analyst rating of Outperform, according to Market Screener.

PointsBet share price: long or short?

What do you make of PointsBet’s capital raise: Are you bullish or bearish on the company’s prospects going forward? Whatever your view, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) PointsBet using CFDs, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘PBH’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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