BetMakers Technology Group Ltd: Record Q2 Cash Receipts and Operating Cashflow
BetMakers Technology Group Ltd
Record Q2 cash receipts and operating cashflow
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. BET reported Q2 FY22 cash receipts of $24.58m, up more than five-fold on the cash receipts reported in Q2 FY21 and 17% ahead of the cash receipts reported in Q1 FY22. The company reported an operating cash profit of $2.79m, its best-ever result, and ended the quarter with $110.88m in net cash, up $2.1m on the previous quarter. This was despite an additional $1.5m investment in human capital and a $3.3m investment in the development and construction of the new Bet Line terminals and related hardware for the US market. We expect to see this investment translate into additional cash receipts and revenue in the coming quarters. BET beat our forecasted H1 FY22 cash receipts and costs. Apart from employment expenses, costs were largely in line with our H1 FY22 cashflow forecasts. We have made some adjustments to our FY22 forecasts, chiefly additional employee costs and shifting expected revenues from New Jersey’s fixed-odds wagering market to Q4 FY22. This has resulted in a reduced FY22 EBITDA forecast but a small increase to our FY23 and FY24 EBITDA forecasts. Our base-case valuation has remained at $2.35/share based on the current share count, and $2.06/share fully diluted for performance rights and in-the-money options.
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 an annualised revenue run rate of ~$90m
Based on the cash receipts delivered in H1, BetMakers is tracking to an annualised revenue run rate of ~$90m, up from the ~$70m the company noted in July, 2021. Our revised revenue forecast for FY22 is $93.5m (previously $94.4m), having pushed back our forecasts for NJ fixed-odds wagering by six months to Q4 FY22. We have made adjustments to our forecasts to reflect ongoing capex on the new Bet Line terminals and lifted our employee cost forecasts to reflect additional staff hires which should translate to longer-term sales.
Base-case DCF valuation is $2.35/share ($2.017b)
Our base-case DCF valuation is $2.35/share on the current share count and $2.06/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 March, 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 further evidence of international expansion.
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