Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for.

Today, we hear from Ron Shamgar, head of Australian equity strategies at TAMIM Asset Management.

What’s hot right now?

The “once in a lifetime” opportunity Shamgar is getting behind is US sports betting, which is a $100bn market.

The US recently changed its laws to allow legal sports betting. New Jersey was the first to adopt the new law and is already booking $5bn in annualised revenue in its first year.

Shamgar said Americans already bet $100bn on sports every year, but it’s done via illegal offshore bookies.

This means the states are missing out on a lot of tax revenue.

To encourage more players into the market, the US is keeping tax rates at a reasonable 6-14 per cent, according to Shamgar.

By comparison, Australia, which is a mature sports betting country has a tax rate of 35-40 per cent.

“That shows you that they’re really trying to incentivise these bookies to go hard and bring back that offshore illegal betting onshore,” Shamgar said.

Fourteen states have already passed the new legislation and the expectation is that they will “go live” next year.

Shamgar says it is projected that by 2023 there will be around 30 states in the US that will have legalised sports betting.

“There will be a revenue opportunity of up to $20bn a year for the actual bookies, not in sports bet actual takings, just the revenue,” he noted.

“Just to give you a comparison, in Australia — which is a really mature market — every year there’s $4.5bn in revenue to the bookies.”

Top picks

Newly listed Pointsbet (ASX:PBH) is one of Shamgar’s picks.

The company made its debut on June 12 at an IPO price of $2. It has now climbed to $2.47, giving it a market value of around $194m.

Shamgar said Pointsbet was now the third largest player in the US market with a 4 per cent share as of April.

“They launched here a couple of years ago and they’re annualising about half a billion dollars in bets taken and $25m to $30m in revenue,” he said.

In the US each state has a limited number of licences that are available for gaming companies and these licences are awarded to the existing land-based casinos and race tracks.

For example, New Jersey has 33 licences, while Iowa has just 12.

“Once all of those are taken by international gaming companies, Pointsbet, whoever it is, there will be no more left,” Shamgar said. “So it is a bit of a land grab.”

Pointsbet already has licence agreements with casinos and race tracks in four states: New Jersey, Iowa, Colorado and Illinois.

Shamgar says the company will no doubt sign more licence agreements as other states pass the legislation.

While Pointsbet is not yet profitmaking, the company has just raised $75m in its IPO, meaning its well-funded to “go hard” on its US expansion.

“If they get it right, then you could make 5x or 10x your money. It’s a huge opportunity. Sort of like a once in a lifetime event.”

The other way to play it, according to Shamgar, is indirectly through payment solutions company EML Payments (ASX:EML), which has a share price of $2.91 and a market cap of about $730m.

EML has offices in Australia, the US, UK, Canada and Puerto Rico.

The company provides debit cards, virtual cards, gift cards, payroll solutions and gaming cards.

“They’re very profitable. They have $100m of revenue, $30m of profit,” Shamgar said.

“But what’s unique about them is they launched their gaming card solution in Australia about five years ago and they essentially cornered the market.

“If you take a punt with the bookie and you win and you’ve got one of their debit cards, you can instantaneously access your winnings.”

EML currently processes around $8bn a year for its clients all over the world and the company has expanded into the gaming market in the UK and Europe as well as the US.

“They’ve signed up Pointsbet as one [client] and they’ve also signed up the biggest gaming company in the world, which is Bet365,” Shamgar said.

“They signed them up a couple of months ago and they will obviously sign up many more of these large international gaming companies as they enter the US market.

“They already have existing relationships because of their Australian and European businesses.”

TAMIM Asset Management has positions in both EML and Pointsbet.

EML is the company’s largest holding. TAMIM got in at a price of $1.50 and EML is now trading at almost double at close to $3.

TAMIM bought into Pointsbet’s IPO at $2 a share and the stock is now trading at nearly $2.50.

 

Ron Shamgar was the cofounder of TBF Investment Management (The Boat Fund) and was portfolio manager of the TBF Small Cap Value Growth Fund from 2013 to 2018. At TBF, Shamgar was responsible for research, company analysis, portfolio construction and marketing the fund. He has been investing actively on the ASX for over 15 years.

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