Stocks’ Details

Pointsbet Holdings Limited

Partnership with NBCUniversal Media, LLC: Pointsbet Holdings Limited (ASX: PBH) offers innovative sports and racing betting products and services directly to clients through its scalable cloud-based technology platform. Recently, the company notified the market that its wholly-owned subsidiary, PointsBet USA Inc has entered a five-year media partnership with NBCUniversal Media, LLC.  PointsBet USA is likely to become the Official Sports Betting Partner of NBC Sports in the US. Under the terms of the agreement, PBH has agreed to incur a total of US$393 million as marketing spend, for which, PBH has inked a subscription agreement with NBCUniversal. PBH will issue new fully paid ordinary shares in the company reflecting an ownership interest 4.9% post shareholder approval and 66.88 million options maturing in five years, to NBCUniversal.

During FY20, the Australian trading business managed to achieve a Net Win amounting to $75.1 million, reflecting a rise of 159.4% on pcp. This includes successive record-breaking months in the June quarter. The company recorded normalised revenue amounting to $75.2 million in FY20, as compared to $25.6 million in FY19.

Key Financials (Source: Company Reports)

Intention to Raise Capital: On 28^th August 2020, the company announced that is planning to raise capital through an accelerated renounceable pro-rata entitlement offer and a placement, which is likely to be launched on 2^nd September 2020 after market close. In addition, the company anticipates that it would apply for a trading halt on its shares commencing after-market close on 2 September 2020 and the shares will cease trading on a cum-rights basis at that time.

Outlook: Looking forward, the company is planning for launches in Illinois, Colorado, and Michigan. The company has scheduled to conduct its Annual Shareholders Meeting on 22^nd October 2020.

Key Risks: As the company operates in the wagering segment, which is highly regulated by the Government, any breach in regulation may impact the business activities. In addition, the business is also exposed to cybersecurity risks and card payment risks.

Stock Recommendation: Current ratio of the company stood at 5.52x in FY20 as compared to the industry median of 1.24x. This reflects that the company is in a decent position to address its short-term obligation against the broader industry. On the technical analysis front, the stock of the company has a support level of ~A$12.646 and a resistance level of ~A$16.393. The stock of PBH has moved up by 117.89% and 116.81% in the past one and three months, respectively. As a result, the stock is inclined towards its 52-week high level of $16.400. PBH has an EV/Sales multiple of 20.1x as compared to the industry median (Consumer Cyclicals) of 1.4x on TTM basis. The stock of PBH is trading at a price to book value multiple of 9.6x against the industry average (Consumer Cyclicals) of 2.9x on TTM basis. Hence, considering the current trading levels, upside movement in the stock within past months and plans for equity raising, we have wait and watch stance on the stock at the current market price of $13.200 per share, up by 1.305% on 1st September 2020. We further suggest investors to wait for better entry levels.

Redbubble Limited

Decent Growth in Top-line: Redbubble Limited (ASX: RBL) operates a creative online marketplace for print on demand products. The market capitalisation of the company stood at $1.04 Bn as on 1^st September 2020. The company rolled out 16 new products in FY20, which include the launch of face masks in the month of April 2020. For FY20, the company reported marketplace revenue amounting to $349 million, reflecting a rise of 36%. Gross profit for the period witnessed a growth of 42% to $134 million. As a result of the increasing profitability and working capital advantage, the company reported a free cash inflow of $38 million against an outflow of $0.2 million in FY19. RBL reported artist earnings of $67 million, indicating a rise of 35%.

Marketplace Revenue (Source: Company Reports)

Future Focus: The company seems to be well-positioned to build on a decade of momentum and aggressively pursue global opportunities. During 2021, the company will be focused on user acquisition and transaction optimisation. The company is likely to conduct its Annual Shareholders Meeting on 21^st October 2020.

Key Risks: The company’s business is sensitive to the risk related to the security and reliability of the technology infrastructure and processes used for marketplaces. In addition, competitive activity and technological disruption may create a challenge for the business.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed FY20 with a cash balance of $58 million. The company is focused on physical product and fulfilment network expansion as well as artist acquisition, activation, and retention. The stock of RBL has moved up by 206.67% and 311.58% within three and six months, respectively. As a result, the stock is trading close to its 52-week high of $4.190. On the technical analysis front, the stock of the company has a support level of ~A$1.85 and a resistance level of ~A$4.188. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a price correction of low single-digit (in percentage terms). For the said purposes, we have considered News Corp (ASX: NWS), Seven West Media Ltd (ASX: SWM), Nine Entertainment Co Holdings Ltd (ASX: NEC), etc., as peers. Therefore, in light of the current trading levels, upside movement in the stock in the past few months and valuation, we have a wait and watch stance on the stock at the current market price of $4.180 per share, up by 6.905% on 1^st September 2020. We also suggest investors to wait for a correction that might offer better entry levels for the stock.

Mosaic Brands Limited

Re-Opening of Westfield Stores: Mosaic Brands Limited (ASX: MOZ) is engaged in the retailing of women’s apparel and accessories. The market capitalisation of the company stood at $54.7 Mn as on 1^st September 2020. Recently, the company announced the reopening of all non-Victorian stores in Westfield shopping centres. This follows successful negotiations with Scentre Group. However, Victorian stores are closed due to Stage 3 and 4 restrictions in the state. For FY20, the company recorded an underlying loss before interest, tax, depreciation and amortization of $45.8 million, which was impacted by recent bushfires and the COVID-19 pandemic. MOZ reported strong and accelerating online digital department store sales amounting to $93.7 million.

Online Sales (Source: Company Reports)

Outlook: The company seems to be in a decent position to return to sustainable profitability in FY21. The company is expecting a store reduction programme of around 300-500 stores in the upcoming 12-24 months, which is subject to final lease negotiations.

Key Risks: The company is mainly exposed to a number of financial risks, including credit risk, liquidity risk, and market risk consisting of interest rate risk, foreign currency risk and other price risks.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: EBITDA margin of the company stood at 11.1% in FY20, reflecting YoY growth of 5.7%. During FY21, the company expects to realise the further cost of doing business savings of $18 million. On the technical analysis front, the stock of the company has a support level of ~A$0.459 and a resistance level of ~A$0.744. We have valued the stock using the price to book value multiple based illustrative relative valuation method and have arrived at a target price of low double digit-upside (in percentage terms). For the purpose, we have taken Accent Group Ltd (ASX: AX1), Myer Holdings Ltd (ASX: MYR), City Chic Collective Ltd (ASX: CCX), etc., as peers. Therefore, considering the decent growth in online sales, re-opening of non-Victorian stores, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.520 per share, down by 7.965% on 1^st September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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