BetMakers Technology Group Ltd - Revisiting the Investment Case for US Fixed Odds
BetMakers Technology Group Ltd
Revisiting the investment case for US fixed odds
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 has just launched fixed-odds wagering, initially in New Jersey. We have revisited the investment case for US fixed-odds horse wagering following its launch in New Jersey at Monmouth Park on May 6. In the (almost) 12 months since our previous report, Eyeing the prize in the US wagering market, the investment opportunity for BET has been expanded with the company now exclusively locked in for 15 years as the licensee to operate fixed-odds wagering in NJ and the right to sub-license to NJ sports-book operators. What has not changed is our strong view that the US horse-wagering market is poised to undergo a similar transformation to that seen in Australia with the introduction of fixed-odds wagering and more recently experienced in the US sports-betting market which introduced fixed odds in 2018. The US opportunity represents ~$0.70/share within our $2.00/share valuation for BET. In other developments, BET has also been contracted as the new tote technology and services provider to Norway under a 10-year agreement signed between its subsidiary Racing Technology Ireland Limited and Stiftelsen Norsk Rikstoto, which is Norway’s sole purveyor of wagering on horse racing. The deal extends BET’s footprint across three of the four Nordic countries that offer betting on racing with Global Tote now the national tote services provider in Denmark, Finland and Norway. BET also recently announced a new five-year platform and services agreement with RobWaterhouse.com from 1 July, which extends the relationship forged in creating the Managed Trading Services 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 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.
US fixed-odds opportunity equates to $0.70/share in valuation
The first fixed-odds horse wager was taken at Monmouth Park on May 6, and fixed-odds betting was conducted on the Monmouth Park season launch meeting on course on May 8, using BetMakers full end-to-end technology and services solution. We have revisited the investment case for US fixed-odds wagering and note that our forecasts are for turnover to grow to US$2.9b cumulatively over the first four years of operation, substantially below the US$27.5b cumulative total generated by fixed-odds sports betting since it was introduced almost four years ago. We are forecasting fixed-odds horse wagering to grow to US$64b by its 10th year in operation, which equates to a cumulative total of US$149b, with BET’s technology touching 36% of the handle.
Base-case DCF valuation is $2.00/share
Our base-case DCF valuation is $2.00/share on the current share count and $1.75/share fully diluted for all in-the-money options and performance rights on issue. Our valuation incorporates a 3.5% risk-free-rate to reflect rising Treasury bond rates. We see evidence of the progress of fixed-odds wagering in New Jersey as a key catalyst, along with 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 are not yet in our forecasts.
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