Thoughts on Pointsbet & Nitro?

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Question asked 29/01/2022

Thoughts on Pointsbet & Nitro?

Hi James & Team, While its been a horror week and all stocks have suffered can you please update us on your current view of Pointset (PBH) and Nitro NTO). Both have been on a downslide prior to this latest correction. Regards Debbie

Answer

Hi Debbie,

It has indeed been a horror week but not totally unexpected in 2022, our guess was a 5% pullback as we closed today down 6.1% for the year although it certainly feels worse especially in the high valuation / growth end of town. Moving onto the 2 stocks you mentioned both of which reside in our Emerging Companies Portfolio:

PointsBet Holdings (PBH) $5.07 – Has been sliding well before this market rout took hold and it’s been a poor performer in our portfolio. They gave a quarterly update on Friday that was underwhelming in our view. Cash burn for the quarter was ~$50m while growth in turnover was only +11%. PBH have made it very clear that the US is a huge opportunity and they need to act and invest now which we agree with, however this investment is not showing up through strong enough growth at this stage which implies competition in the space is high. In any case, we are going to hold the position given the progress PBH have made towards a huge market opportunity, the strategic licencing they have in place and of course their cash balance of $569m which equates to around 50% of their total market cap of $1.3bn. If it falls any further, it’s a prime takeover candidate.

Nitro Software (NTO) $1.75 – Is a $425m business similar to DocuSign (DOCU US) in the US which is capped at $US23bn. DocuSign have had a few issues in terms of sales growth and fallen substantially. Overlay a large sell-off in technology and that explains the fate of NTO. We still like Nitro despite the decline and if you think about the huge movement away from paper based documentation to electronic documentation, NTO has a great foothold here.

We will be making some tweaks to the Emerging Companies Portfolio on Monday, keep an eye out for alerts.

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PointsBet Holdings (PBH)

LAST UPDATED 28/01/2022 17:36

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