BetMakers Technology Group Ltd - Q1 FY23 Solid, Adds Punting Form to Bolster Tech

99 Views07 Nov 2022 08:00

Issuer-paid

SUMMARY

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 in the throes of adopting 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. BET reported a 19% increase in Q1 FY23 revenue to $23.9m and a 13.4% increase in Q1 FY23 cash receipts to $23.8m. Q1 FY23 saw a 36% rise in costs, year-on-year, entirely due a combination of a 14% increase in COGs to $6.9m and to a significant rise in staff costs which included annual bonuses and contractor costs associated with setting up the Betr platform. An estimated $3m of the $17.69m in staff costs reported for the quarter won’t repeat in Q2 and another $1m will ease off over the next six months. All other costs were flat for the period. BET reported operating cash outflows of $5.9m for the half, which we expect to see mostly reverse in Q2 FY23. The company ended the quarter with net cash of $64.1m, compared with $87.6m at Q4 FY22, having utilised $11.68m in its share buyback and investing $5.8m for the rights to Penn National Gaming’s racing content outside the US and Canada. Post the quarter, BET has acquired the Punting Form for an upfront payment of $3m and up to $17m over the next three years, subject to performance hurdles. The Punting Form’s proprietary IP is expected to strengthen the integrity and depth of BET’s platform.

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 225 racing partners, 60+ online wagering operators and processes over $15 billion of wagering turnover annually. The company holds a 15-year exclusive deal to operate fixed-odds horse wagering in New Jersey, positioning BET to be a significant player in the transforming US wagering market. Its technology is also underpinning the recently launched Betr platform, driving both its front and backend, which is aiming for a significant position in the Australian wagering and sports-betting markets.

Minor adjustments for H1, incorporating Punting Form

We have incorporated some higher short-term costs in our H1 FY23 forecasts which has had a minor impact on our overall earnings forecasts for FY23. We have also incorporated the just completed acquisition of Punting Form and assumed that the earn-out targets are achieved and paid out.

Base-case DCF valuation $2.06/share (previously $2.28/share)

Our base-case DCF valuation is $2.06/share on the current share count of 934.6m and $1.89/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, the Betr wagering platform, and assumptions for growth for the Global Racing Network division which will service the Penn National Gaming deal and other data and vision opportunities. We have also incorporated the recent Punting Form acquisition designed to strengthen the integrity and depth of BET’s racing data. We see key catalysts as evidence of take up of fixed- odds wagering in the NJ and other US states, the ongoing rollout of the Betr wagering platform, and growth in GRN revenue from Penn National Gaming and other ventures.

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