Description

Racing and Sports (RAS Technology Holding Ltd or “RAS”) is an Australian provider of premium data, enhanced content, and SaaS solutions to the global racing and wagering industries.  RAS is a bit of a busted IPO from the frothy 2021 period.  The two founders sold down their stakes at a valuation of 10x EV/ARR ($1.80/sh) in late 2021. Interestingly, Entain, one of the largest global sports betting companies and a long-time customer of RAS, purchased 10% of the company at the IPO.  Despite solid execution the shares were hit by broader weakness in sports wagering companies in Australia and globally as well as overall market conditions.  Shares being so far down from their IPO price also caused considerable tax loss selling which peaked in June 2023. So while the share price resembles a rollercoaster over its ~2 year public market history, I think it’s undervalued given their continued progress, highly attractive business model, and recent inflection to profitability.

Prior to their IPO, RAS was a small, but very profitable, data services company with about $3.7M in annual revenue at 98-99% gross margin and roughly 30% EBITDA margins.  The plan with the IPO was to raise capital and grow the company by developing and offering more enhanced data and services.  They’ve delivered exceptionally on this front, growing revenues at a 45% CAGR over the prior 4 years.  I estimate NTM revenues are 17-20M with YoY growth still above 40%.  They are also now profitable, with annualized EBITDA probably between 2-3M/yr based on the last trading update and have 9-10M net cash on the balance sheet vs. a market cap of only $48M.  Importantly, given their high margin, LT recurring revenue stream, any further growth will swiftly improve operating margins.

RAS has compiled and maintained an extensive database covering over 20 years of value-added data for thoroughbred, harness, and greyhound racing covering over 30 countries.  Their extensive database, experience in the industry, and proprietary analysis, formulas, and algorithms is what drives their high quality racing data and content business.  They have a dedicated office and team in Sri Lanka that continually monitors and tracks races around the world to continue building their database.  One of RAS’s founders, Gary Crispe, has been a well respected racing industry expert for decades which no doubt has been critical to their success and brand.

High margin recurring revenue from data services is still their largest revenue stream but they’ve grown their wagering technology revenue to nearly $4M/yr from almost nothing and it grew 65% YoY last FY.  Given their strong, multi-year customer relationships and reputation for top-tier data and content it is clear how their strategy to add complementary products and services has been so effective. Their list of contract wins, renewals, and upgrades over the last two years have been very impressive:

2022

• New agreement to deliver its Trading Manager technology and Race‐Day Control services on behalf of XB‐Net racecourses (XB Net represents 60 racecourses and covers 45,000 races per year) throughout the United States and Canada

• Racing and Sports and Sky Racing World have expanded their partnership to bring a new and enhanced digital and media offering to US wagering operators (3 year agreement with option for 3 year renewal)

• Racing and Sports signs expanded 5-year deal with Entain in Australia (~1M/yr over 5 years)

• 2-year contract with Picklebet to provide the Company’s Risk Managed Trading Service and industry leading customer-facing content to power Picklebet’s Racing product

2023

• Racing and Sports signs six-year enhanced data deal with Tabcorp (1.8M/yr for 3 years + 3yr renewal option)

• 3 year contract with UK-based platform provider Playbook Engineering to be the exclusive supplier of RAS’s best-in-class wagering technology solution, racing data and editorial content. (estimated annual revenue of at least $800k/yr)

• Three-year deal signed with Racing and Wagering Western Australia for RAS to supply market-leading racing content for TABtouch's international racing offering. The deal also includes two additional one-year options. RAS is contracted to receive $1.16 million plus indexation over the initial three-year term, with an additional $772k plus indexation to be received upon the exercise of the optional two one-year options (potential total contract value in excess of $1.93 million)

2024

• Biggest of all: RAS will provide a full turnkey solution to Stake.com, encompassing market-leading racing data and enhanced content, a Trading Manager platform, full risk management services, and sophisticated customer and generosity management tools to seamlessly integrate with Stake's existing front-end wagering platform.

  • The compensation structure for delivering the racing solution will be linked to a percentage of the net gaming revenue generated from Stake.com's racing offer.

  • The contract has the potential to be RAS’s most significant to date and is for a two-year period plus a one-year renewal period (I take this to mean at least 2M/yr estimate since Tabcorp deal is largest previously announced at 1.8M/yr)

  • The agreement's term will commence upon the official launch of Stake.com's racing offering, currently anticipated for the first quarter of 2024.

So taking a step back, RAS is a fast-growing picks and shovels play on the global sports wagering market (with enterprise SaaS unit economics) growing revenue 40% YoY trading at 2x EV/Rev.  They also serve very large customers in a highly competitive industry.  All the big B2C wagering operators are looking to gain an edge in pursuit of market share of the massive and growing global sports wagering market, which puts a leading, respected data and content provider like RAS in a very good position to continue growing its customer base and expanding services.  At a little over $1/sh, I believe there is a significant margin of safety vs. the true value of the business.  I’m not as sure what the LT growth will be, but I do know at these prices you aren’t paying for growth at all.

Catalyst

-Continued revenue growth and inflection to profitability

-Execution on their largest and highest potential contract with Stake.com