Our top two picks for Emerging Companies are:

POINTSBET (PBH) (Speculative)

Founded in Melbourne in 2015, PBH commenced operations as an Australian corporate bookmaker in February 2017. The May 2018 decision by the US Supreme Court to overturn the Professional and Amateur Sports Protection Act (PASPA) has provided the opportunity for PBH to expand its corporate bookmaking business into the US market, as individual states introduce legislation to permit both online wagering and sports betting.

To apply for a US online sports betting licence, PBH is required to partner with a licensed operator in the form of a casino or racetrack. PBH currently partnerships in 10 US states with a combined population of 81m. PBH accepted its first customer bet in New Jersey in January 2019 and Iowa in August 2019. With online sports betting legislated in Indiana, West Virginia, Illinois and Colorado (combined population 27m), we see the potential for PBH to be live in these states by June 2020.

PBH is in the battle for the 3rd largest online bookmaker in New Jersey after reporting 6.7% share of online sports wagering turnover in the September 2019 quarter. At 30 September 2019, the US registered client base of 37,231 represented 25% of PBH’s 148,902 total clients. After raising $75m in its June 2019 IPO, PBH’s war chest has been further topped up to continue its customer acquisition efforts and entry into new US states following the completion of its $122m capital raising launched in October 2019.

US online sports wagering is an emerging market, where we see increasing strategic value for leading online bookmakers such as PBH when considering:

  • US sport media annual broadcast rights of US$22.4bn (US$69 per capita): Sports represented 43 of the top 50 highest rating broadcasts in the US in 2018.
  • 5,400 annual matches spanning NFL, NBA, NHL, MLB: Significant spectator interest from average attendance of >67,000 for NFL, >28,000 for MLB, >17,000 for both NBA and NHL.
  • New Jersey online betting accounted for 85.5% of total turnover in Oct 2019: Up from 84.0% in Sep 2019, with the potential to approach 90% over US winter.
  • Impetus for legislation in new states following successful New Jersey model
  • Consolidation expected with 17 online bookmakers operating in New Jersey: Australia has 6 major bookies: TAB, Sportsbet, BetEasy, Ladbrokes, Bet365, PBH.
  • Potential to negotiate partnerships in new states on more favourable terms following New Jersey success.

RESIMAC (RMC)

RMC is one of Australia’s leading nonbank mortgage providers, servicing over 50,000 customers with principally funded assets under management of $10.9bn. Resimac is the pioneer of securitisation of Australian residential mortgages with its first Australian Residential Mortgage-Backed Security (RMBS) issuance dating back to 1988 under the name Fanmac. To date, RMC has issued more than $29bn across 49 domestic and international RMBS issues. RMC does not have the overhead of maintaining an extensive nationwide branch network, rather it has relationships with over 85% of Australia’s mortgage brokers, where customer service and a quick approvals process have been key factors for RMC increasing originations.

In a post Royal Commission environment where most mortgage providers are facing an earnings squeeze, RMC’s 1H20 Net Profit Guidance of $24-27m implies growth of ~75% on the 1H19 result of $14.5m. Included in this guidance is growth in principally funded Assets Under Management of 7% from $10.2bn at 30 June 2019 to $10.9bn at 31 October 2019. By contrast APRA data indicates major bank mortgage lending declined 0.9% from June 2019 to September 2019, while non major bank lending increased 3.7%.

With a majority of its funding consisting of domestic floating rate Residential Mortgage Backed Securities (RMBS) priced at a margin to the 1 month bank bill, RMC has also benefitted from the 25bp RBA rate cuts in June, July and October. By comparison, CBA had 69% of its FY19 group funding comprising customer deposits, of which 64% of deposit funding was at call and / or non interest bearing, limiting the ability to pass through rate cuts on deposit funding.

RMC’s net interest margin is also a beneficiary from the fall in the spread between one month bank bills and the RBA cash rate. This spread is currently running at an average of 0.09% for 1H20, well below the average 0.39% for 1H19. RMC profitability remains highly sensitive to movements in the net interest margin, where we estimate a 1bp improvement in the net interest margin increases RMC’s FY20 net profit by $777,000.

Authored by Damien Williamson – Research Analyst at Bell Potter Securities, 17 December 2019
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Disclosures:
PointsBet (PBH):
Bell Potter Securities Limited acted as Lead Manager to the PBH IPO in Jun 2019 and Institutional Placement and Entitlement Offer in Oct 2019 and received fees for these services.