PointsBet [ASX:PBH] Shares Soar on $94 million SIG Investment

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Betting platform PointsBet Holdings [ASX:PBH] announced a $94 million equity investment from SIG Sports Investments, a large financial trading firm.

The injection of capital comes at an opportune time for PointsBet, who is down 80% in the past 12 months.

PBH’s sharp rise on Monday bucks the overall trend, with the ASX 200 down 0.7% on late afternoon trade.

ASX:PBH stock prices chart

Source: Tradingview.com

PointsBet’s SIG Investment

This morning, PointsBet announced its ‘new strategic investor’ in SIG Sports Investments in a placement worth $94.16 million.

The placement totals 38,750,000 shares at $2.43 a share. This represents a 15% premium to the five-day volume weighted average price (VWAP) to 17 June 2022.

The deal means SIG Sports will become PBH’s largest shareholder with a 12.8% stake following the capital issuance.

The company said there will be no board changes as a result of the equity placement.

PointsBet Chairman Brett Paton commented:

We are delighted to pair up with a visionary investor which has committed ongoing support and is eminently qualified in analytical trading in financial markets, and now in sports.

The cultural alignment between both organisations is strong, and this investment will assist with expanding and growing our North American operations as we seek to lead in in-play betting and enhancing the overall customer experience.’

SIG Managing Director Jeff Yass said:

After several years of thoroughly evaluating the North American sports betting market for the right partner, SIG Sports is pleased to have made what we consider to be a long-term investment in PointsBet.

We have been following their journey for some time and have developed a very positive view of the overall business operations and the capability of the PointsBet leadership team.

We believe PointsBet has great potential for future growth and success in the North American sports betting market and SIG has both the analytics and capital to help realize that potential.’

PointsBet also announced that it will be working closely with Nellie Analytics, a Dublin-based branch of SIG.

Over nine months, Nellie will assist PBH in developing sports analytics and modelling operational systems, aiming to improve PointsBet’s gaming technology.

PBH CEO Sam Swanell gave further detail on the Nellie collaboration:

In Nellie Analytics we have found another like-minded team of technologists, whose services we believe can accelerate our product led strategy and thus our right to win in the USA, Canada and Australia.

In practical terms, the partnership will enable PointsBet to have more accurate lines and sharper risk management.’

More line accuracy and sharper risk management ideally translates to better gross win margins.

In the wagering industry, the win margin refers to the dollar amount received from customers who placed losing bets minus the dollar amount paid to customers with winning bets.

For PointsBet, whose large share price fall paralleled widening losses, improving its gross win margins would be an important strategic pursuit.

PBH share price outlook

The $94 million secured from SIG Sports will be followed by more capital raising by PointsBet.

On the same day as SIG Sport’s equity stake announcement, PBH also revealed a deferred bonus equity options (DBEO) scheme.

PointsBet said the DBEO is set to raise up to $150 million during the next two years.

PBH said eligible shareholders will receive one DBEO for every 20.2 ordinary shares held at 7:00pm (AEST) on Tuesday, 5 July 2022, for nil consideration.

PointsBet further added:

While the Board believes the Company is adequately funded to execute its strategy in the near term, given volatility of markets and the evolving competitive wagering landscape (particularly in North America), the Board has determined that it would make a bonus issue of options that expire in two years and which are exercisable into ordinary shares in the Company at a 20% discount to the prevailing share price at the relevant time. This will provide the Company with flexibility to access future capital as needed, while ensuring our existing, Eligible Shareholders who have been loyal and supported the Company, can participate in an equitable way. We have decided to call these options “deferred bonus equity options” or “DBEOs”.

Now, while the SIG Sports equity stake boosted PBH shares sharply on Monday, the stock is still well down over the past year.

With PointsBet’s own chairman flagging the ‘evolving competitive wagering landscape’ in the key growth market in the US, PBH must turn its attention to executing its growth strategy.

SIG Sports’ investment is a nice confidence-booster, but the firm has a long way ahead.

Now, PBH’s 80% drop over the past 12 months highlight the heavy selling pressure sustained by many stocks.

But opportunities are still out there.

The key is knowing where to look.

Our small-cap expert, Callum Newman, has a strategy for picking out ‘left-for-dead’ stocks most likely to bounce back.

You can find out how he does it, ‘grave-dancer’ style, here.

Regards,

Kiryll Prakapenka,

For Money Morning

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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