BetMakers Technology Group Ltd: Upgrading Valuation on NJ Racing Commission Endorsement

Equity Bottom-Up

507 Views23 Nov 2020 08:00

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SUMMARY

BetMakers Technology Group Ltd

Upgrading valuation on NJ Racing Commission endorsement

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 is now taking its technology to the US market where fixed odds horse wagering is in its infancy. The company received a significant endorsement last week when the New Jersey Racing Commission approved a Fixed Odds pilot program for Grade 1 stakes races from January 1, 2021. The approval is separate to and supportive of the Bill currently before the New Jersey legislature to allow Fixed Odds wagering on horse rates through Fixed Odds wagering system. The legislation once passed and in law, will allow anyone in New Jersey over the age of 18 to bet on fixed odds horse raising. With so much surety lining up for BetMakers’ US expansion, we have taken the opportunity to reduce our discount rate to 11.9% from 13.6%, resulting in our base case DCF valuation increasing to $0.80/share fully diluted for all in the money options (previously $0.60/share). On the current share count this equates to $0.96/share.

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. Over time we expect the SaaS revenue share to average ~45- 50% as the company expands its racing data and informatics platforms and new integrity platforms in both Australia and offshore.

Pilot program on Grade 1 races ahead of Bill being passed

BET announced last Thursday that the New Jersey Racing Commission had approved a Fixed Odds pilot program for Grade 1 stakes races to commence from 1 January 2021. We see this as a significant endorsement of the Fixed Odds wagering opportunity in that state and BET’s partnership with the NJ Thoroughbred Horsemen Association and Darby Development LLC, operator of the Monmouth Park racetrack. The pilot program will operate separate to the current legislative process for the bill to enable Fixed Odds horse racing in New Jersey. With 108 Grade 1 horse races across the United States each year, the pilot program provides an early start for BET and its wagering partners to provide New Jersey punters with Fixed Odds wagering across these races.

Base case DCF valuation upgraded to $0.80/share fully diluted

We have upgraded our base case DCF valuation to $0.80/share (previously $0.60/share) fully diluted for all in the money options, on the basis that BET’s foray into the US wagering market has been substantially de-risked by the endorsement of the NJ Racing Commission’s approval for a pilot program. On the current share count, our base case DCF valuation is $0.96/share. In our view, BET is well placed to deliver on its stated opportunities. We see potential upside from our current forecasts for BET’s role in the development of the fledgling US fixed odds wagering market beyond New Jersey.

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