BetMakers Technology Group Ltd: FY22 off to a Stunning Start
BetMakers Technology Group Ltd
FY22 off to a stunning start
BetMakers Technology Group (ASX:BET) is a B2B software services business providing racing, wagering and integrity data, software and hardware products to bookmakers, racing authorities and rights holders globally. The company is rapidly on a path to become a key player in the transforming US horse racing industry, which is poised to introduce fixed odds wagering, initially in New Jersey where BET has a 10-year exclusive licence with New Jersey Thoroughbred Horsemen Association and Darby Development LLC to deliver and manage fixed odds thoroughbred horse racing. BET reported Q1FY22 cash receipts of $20.95m, up more than four-fold on the cash receipts reported in Q1FY21 and 135% ahead of the cash receipts reported in Q4FY21. Excluding estimated cash receipts from the recently acquired Sportech business, underlying cash receipt growth was around 130% on Q1FY21 and 33% on Q4FY21, demonstrating the leverage this business benefits from as it adds new customers. The company reported an operating cash loss of $1.49m for the quarter following an increased investment in human capital to drive the opportunities BET is chasing in the US and internationally. We expect to see this investment translate into additional cash receipts and revenue in the coming quarters. BET has delivered 61% of our forecasted H1FY22 cash receipts and 53% of the costs we have factored into H1FY22 cashflow forecasts. We have increased our forecasts for employee and operating costs for FY22 resulting in a reduced EBITDA forecast but factored in the end of the MTS revenue share from July 1, 2022 which has had the effect of lifting our base case valuation to $2.35/share (previously $2.31/share).
Business model
BetMakers operates a SaaS style model for its racing data and informatics platforms: Global Betting Services and DynamicOdds. Racing bodies and bookmakers pay a monthly recurring fee for access to the platforms with contract periods usually of three years’ duration. BetMakers also generates revenue from the content distribution deals it has in place with international racing authorities such as US Greyhounds and US Racing and UK Greyhounds which are more aligned to share of turnover. The recently acquired Sportech business delivers additional SaaS-style revenues from its tote technology as well as a share of turnover from its tote operations. It also establishes BET as a pari-mutuel operator across 100 US racetracks, casinos and other venues in 36 states ahead of the opportunities to develop a fixed odds wagering business initially in New Jersey, which has been one of the leading states in the introduction of fixed-odds sportsbetting.
Tracking to an annualised revenue run rate of $84m
Based on the cash receipts delivered in Q1, BetMakers is tracking to an annualised revenue run rate of $84m, up from the ~$70m the company noted in July. Our revenue forecast for FY22 of $94.4m includes our expectation that fixed odds wagering will commence in New Jersey before the end of Q2FY22. In our view, our revenue forecasts for FY22 could prove conservative. We have made adjustments to our forecasts to reflect the capex on the new Betline terminals and additional staff hires which should translate to longer term sales.
Base case DCF valuation is $2.35/share ($2.01b)
Our base case DCF valuation is $2.35/share (previously $2.31/share) on the current share count and $2.09/share fully diluted for all options and performance rights on issue. Our forecasts capture estimates for the broader US fixed odds wagering opportunity and assumes that BET maintains the ~25% share of market currently commanded by the Sportech tote business except in NJ where it holds exclusivity for the next 10 years. We see key catalysts as the commencement of fixed odds wagering in New Jersey once the rules are defined by the relevant government agency and demonstrated expansion in both the US and international wagering markets.
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