BetMakers Technology Group Ltd - On Track to Meet Our FY22 Forecasts
BetMakers Technology Group Ltd
On track to meet our FY22 forecasts
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 15-year exclusive licence with New Jersey Thoroughbred Horsemen Association and Darby Development LLC to deliver and manage fixed-odds thoroughbred horse racing wagering. With the New Jersey launch imminent, BET reported Q3 FY22 cash receipts of $21.6m, up more than three-fold on the cash receipts reported in Q3 FY21 but down 12% on the cash receipts reported in Q2 FY22, reflecting a seasonally quiet quarter for wagering. The company reported an operating cash loss of $2.89m, the result of increased product manufacturing costs and admin and corporate costs. BET ended the quarter with $107.8m in net cash, down $3.1m on Q2 FY22. The quarter included $2.5m in additional payments not related to the quarter, third party costs relating to the new NTD platform, US fixed odds, audit fees and on-off legal fees and a global staff short-term incentive payment. The company also continued to invest in the Bet Line betting terminals and other on-track hardware for use in the US which we expect to see recouped in additional revenues in coming quarters. We have maintained our forecasts and valuation which stands at $2.28/share. We expect all eyes to be on the launch of fixed odds wagering in New Jersey, slated for May 7 although subject to some final regulatory ticks and continue to see this as the main game-changer for BET in terms of both revenues and market position.
Business model
BetMakers provides racing, wagering and integrity data, software and hardware products to bookmakers, racing authorities and rights holders globally. These include the supply of an international tote and other betting product engines, and services for bet types, including fixed odds, that monetise horse racing for stakeholders. BetMakers operates in more than 30 countries globally with greater than 200 customers and processes over $15 billion of wagering turnover annually. This, combined with BET’s 15-year exclusive deal to operate fixed-odds horse wagering in New Jersey, positions the company to be a significant player in the transforming US wagering market.
Tracking to meet our FY22 cashflow and revenue forecasts
Based on the cash receipts delivered year to date, BetMakers is tracking to an annualised revenue run rate of ~$90m, up from the ~$70m the company noted in July, 2021. Our revenue forecast for FY22 is $93.5m and incorporates just $0.7m in net revenues for NJ fixed- odds wagering in Q4 FY22. We have yet to incorporate revenue forecasts from the NTD platform venture, but note that it is likely that some of the set up revenues will be captured in Q4 FY22. As we highlighted in our report of 22 April 2022, we see this venture as earnings and valuation accretive but view the NJ opportunity as the main prize.
Base-case DCF valuation is $2.28/share ($2.06b)
Our base-case DCF valuation is $2.28/share on the current share count and $2.01/share fully diluted for all in-the-money options and performance rights on issue. Our forecasts capture estimates for the broader US fixed-odds wagering opportunity and assume 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 15 years. We see key catalysts as the commencement of fixed-odds wagering in New Jersey from May 7, progression of its Heads of Agreement with Caesars Retail Sportsbooks to be the exclusive provider of pari-mutuel racing services at bricks-and-mortar locations in Nevada, and the rollout of the NTD platform in Australia and New Zealand, which we have yet to incorporate in our forecasts.
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