RAS Technology Holdings Limited (RTH.AX)

Aug 30, 2022

In Australian dollars unless specified otherwise

Short pitch

RTH is a $31 million illiquid nanocap that is growing revenue at more than 50% a year in a rapidly growing industry with $11 million in cash, no debt and a well-aligned capable management team.

Introduction

RAS stands for Racing and Sports. Racing and Sports was founded in 1999 by Gary Crispe and Robert Vilkaitis and started out as a racing content website (racingandsports.com). It became one of the country’s most valuable online resources of information about horse racing. Founders quickly discovered that there was a huge demand for accurate and well-formatted data from wagering operators in the industry so they decided to seize that opportunity. Fast forward 20 years and today RTH is one of the leading wholesale data and content providers in the industry that work with the largest wagering operators in the world. Company covers 1800 racing centers across 30 countries.

What does RTH exactly do? They take the raw data from racing bodies and right owners, package it into a digestible format and provide it to bookmakers (oversimplified). Bookmakers need this real-time accurate data to properly determine prices and odds for the races and to present visually appealing information to the bettors.

Company raised $29 million through an IPO in November 2021. $15 million of that money went to founders as they wanted to partially cash out. Gary and Robert still remain the largest shareholders of the company with each one owning 26%. The grand plan is to use the IPO money for international expansion and broadening product offering to cross-sell and upsell.

Products

The bread and butter of the company is, of course, provision of wholesale data and content to wagering operators. This segment brings more than 60% of the company’s revenue. Contracts are typically signed for 1-3 years and RTH has no churn with enterprise customers (enterprise customer is defined as one that brings more than $50,000 in revenue annually). Average annualized revenue per customer grew from $344k in June 2021 to $410k in June 2022 which demonstrates the need for company’s products as well as company’s ability to upsell them. SAAS model is used for this product which provides a comfortable recurring revenue stream.

A very promising product that is supposed to be released in 2022 is a white label wagering platform which offers trading and pricing capabilities. There are a lot of small players in the market that do not have technical capability or resources to develop their own platform. It takes a lot of time and money to develop a trading/betting platform from scratch. COVID has taken a lot of these small players out of business. This fact just highlighted the need to have an online presence for retail bookies to survive. RTH is planning to offer their white label product as a subscription service. On top of the subscription revenue RTH will collect a percentage of a total gross gaming revenue (GGR).

Digital media and content asset is company’s racingandsports.com website. Company released an updated version of it for UK and US in June 2022. Website has more than 2.5 million unique visitors per year. Monetization of this channel is done mainly through advertising and B2C products and services that are available directly on the website.

Specialist data services. This product offers premium data and content for retail and private customers and is available via subscription through the company’s website.

RTH also provides consulting services to wagering operators and racing bodies.

Competition

Betmakers technology is an ASX-listed company (BET.AX) and is the biggest competitor of RTH in Australia. Betmakers recorded $92 million in revenue and $2.2 million in adjusted EBITDA in FY2022. With almost $90 million in cash, they trade at (EV) 2.8 times revenue and about 120 times EBITDA.

SIS – Sports Information Services – private UK company that provides broadcast and production services to the betting industry. Large bookmakers are substantial shareholders of the company – Ladbrokes, Betfred, William Hill and Tote. SIS did $393 million in revenue in FY 2020. This is a good place to mention that Ladbrokes is a 10% shareholder of RTH.

Equibase – private US based horse racing data provider.

Vermantia – private Greece based company which provides data and content on 50,000 races per year in UK, Australia, South Africa and US. It was acquired in 2016 by Arena Racing Company which operates 16 racecourses in UK.

Management

Gary Crispe, company’s co-founder, is a Chief Commercial Officer of the company. Robert Vilkaitis, another co-founder, is company’s Chief Technical Officer. Both co-founders are engineers by trade, and appear to me as ones of the “founding fathers” of online horse racing industry in Australia. Stephen Crispe who is a son of company’s co-founder – Gary Crispe – became a CEO in the beginning of 2021. He’s been “on and off” with the company for the last 20 years having embarked on his own journeys during this time. Stephen has a computer science degree and worked as a solution architect in multiple companies (which I biasedly like).

Instead of digging into biographies of co-founders (which are stellar) I thought it would be more interesting to highlight a few related party transactions.

Gary and Robert were leasing the company building to themselves which is not a good sign. After listing on ASX they claimed they would terminate the leasing agreement by March 2022 and move to some other place. In the latest annual report, they didn’t specifically say the lease was terminated but relocation to new Canberra HQ was mentioned. Eliminating this related party transaction is a good thing.

Stephen Crispe controls a bookmaker that has two agreements with RTH: one is for using company’s products (RTH gets money) and another one is for testing them (RTH pays money). RTH pays $180k per year for testing but receives 3.5% of the bookie’s GGR as a service provider. I am not sure how big of a bookie Stephen is running so it’s hard to say whether these transactions even each other out or not.

Another interesting thing here is how CEO and CFO were given 1.2 million options at IPO. It caught my eye as a large number (which it is) but it was given at a premium to market at the time ($1.95 exercise price vs $1.5 IPO price). Options expire 24 months after the listing event – in November 2023. Stephen surely is motivated to see the share price go above $2 mark to make his options worth something.

Things I don’t like

Valuation

Current market cap is $31 million. Company closed FY2022 with $10.7M in cash generating $8.3M in revenue. This puts enterprise value at 2.4 times revenue with 57% growth YOY. Not bad.

I believe company can grow revenue at 50% for at least a few years from now. With multiple in-demand products to be released in CY2022 and online betting industry booming the 50% growth rate is not too difficult to imagine.

Summary

I think RTH will double within the next two years.

Related info

Racing body - an entity that owns the raw data about all the races. The data includes information such as horse and jockey names, past performances of the horse, dates of the races, etc. 

Rights owner. I am still trying to figure out that clear distinction between racing bodies and right owners. Anywhere you look these two are referred to together.

Wagering operator is, in my understanding, a glorified name for a bookie (bookmaker).

40% of adults in Australia gamble regularly where “regularly” is defined as at least once a month. 

There are around 4400 retails bookies in Australia and more than 7000 in UK. These retail bookies will be the main targets to sell the upcoming white label platform to.

There are two types of betting: pari-mutuel and fixed-odds. Pari-mutuel betting is a type of betting where bettors play against each other and the house takes its small commission. The odds are not known until the race is over. Pari-mutuel betting is also known as totalizer or tote. Fixed-odds betting is a type of betting where bookmaker places odds before the race and players bet against the house. There is a lot more money in fixed-odds betting. In US the only state that allows fixed-odd betting is New Jersey. Colorado allowed it for 18 months trial period. 

Form of a horse in horse racing is horse’s record of significant events, mainly its past performance.

Turnover is a total amount of money gambled. Revenue is what is left after you deduct all the prize money from turnover.