Does the US business sale make Pointsbet shares dirt cheap?

On Monday, the Pointsbet Holdings Ltd (ASX: PBH) share price came under significant pressure.

The sports betting company’s shares lost 20% of their value to end the day at $1.46.

They have continued to fall again on Tuesday and are currently down 7% to $1.35.

This means Pointsbet shares are now down 45% over the last 12 months.

Why did the Pointsbet share price crash into the red?

Investors were selling down the sports betting company’s shares after it announced the sale of its US business.

Pointsbet has agreed to sell its US operations to Fanatics Betting and Gaming for US$150 million ($222 million).

Once complete, Pointsbet will retain both its Australian and Canadian businesses. Furthermore, shareholders will receive the net proceeds of the sale directly in the form of capital returns. The company estimates these returns will have a value of between $1.07 and $1.10 per share.

Should you invest?

The team at Bell Potter has been looking at the news. And while it doesn’t appear overly impressed, it still sees value in Pointsbet shares following recent weakness.

In response to the news, the broker has retained its speculative buy rating with a heavily reduced price target of $2.00. This implies potential upside of 48% for investors over the next 12 months.

The broker explains that it now values Pointsbet shares with a sum of the parts model. It ascribes a 72 cents per share valuation to the Australian business and a modest 8 cents per share valuation to the Canadian business. The balance reflects the proposed capital return from the US business sale. It explains:

Following this announcement we move to a sum-of-the-parts valuation and assume the sale of the US business proceeds and $1.085 – the mid point of the range – is returned to shareholders. On top of that we assume a A$220m valuation for the Australian business ($0.72 per share), a token A$25m valuation for the Canadian business (A$0.08 per share) and cash of $35m ($0.11 per share). This equates to a valuation of $2.00 per share which is a 31% decrease on our previous valuation of $2.90. At a $2.00 valuation the expected return is still >30% so we retain our BUY (Spec.) recommendation.

Bell Potter also highlights that the value of the remaining assets is far less than what the company was rumoured to be selling them for just a few months ago. It said:

At the current share price the implied valuation for the Australian and Canadian businesses combined is <A$100m which is too low in our view especially when there was speculation of a sale price for the Australian business of >A$200m a few months ago.

The post Does the US business sale make Pointsbet shares dirt cheap? appeared first on The Motley Fool Australia.

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