BetMakers Technology Group Ltd: Potential Lynchpin in a Global Tote and Fixed Odds Play

Equity Bottom-Up

603 Views01 Apr 2021 08:00

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SUMMARY

BetMakers Technology Group Ltd

Potential lynchpin in a global tote and fixed odds play

BetMakers Technology Group (ASX:BET) is a B2B software services business focussed on servicing the wagering market and race operators globally. The company’s technology and systems are used by every racing authority in Australia and most of the major online bookmakers. BetMakers is not a gaming company, it is a technology company that is facilitating commercial opportunities for racing authorities, rights holders, and corporate bookmakers while providing an improved racing experience for punters. The company has updated the market that Q3 was on track to deliver $5m revenue, a 25% increase on Q2 FY21; that the Sportech acquisition had progressed and was expected to complete in mid-Q4 FY21; that the Managed Trading Services business would double its clients to add four in Q4 FY21 with more in the pipeline; and that New Jersey legislation to allow fixed odds horse wagering is progressing well with increasing support being given to the legislation, paved in part by BetMaker’s acquisition of Sportech which is the third largest US pari-mutuel operator. BetMakers is also reportedly (Matthew Tripp plans to combine Tabcorp with Betmakers in $5bn deal, The Australian, 29 March) emerging as a key lynchpin in global tote plans being considered by new investor and strategic adviser Matthew Tripp. Our base case valuation remains at $1.16/share, but we note that we have only included modelling for potential upside from NJ and Sportech.

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 3 years’ duration. Of its $9.2m in revenue in FY20, 67% was generated under the SaaS model. 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 acquisition of Sportech will deliver additional SaaS-style revenues from its tote technology as well as a share of turnover from its tote operations. It will also establish 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.

Opportunities all coming together
BET has confirmed the Sportech tote assets and digital technology are on track to be finalised mid-Q4 FY21 and that the New Jersey legislation for legalising fixed odds horse wagering is progressing. These combined with news reports that recent BET investor and strategic adviser Matthew Tripp was planning to combine BET with Tabcorp’s tote assets highlight the prospect that the company is a key component for a potential global tote business. We look at the near term potential presented by the US horse wagering market with a look through from the explosive growth in the fixed odds sports betting market. Our analysis identifies that the combined US sports and race betting market size could be from US$24b and US$41b in gross revenues at maturity, with race betting potentially from US$9.6b to US$30.5b (compared to ~US$1.5b).

Base case DCF valuation of $1.16/share unchanged
Our base case DCF valuation of $1.16/share remains unchanged. Our valuation incorporates the Sportech acquisition and the rollout of a fixed odds business in New Jersey. We note that there is a broader opportunity in the US, which we discuss in this report but which is not captured in our current forecasts.

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