Racing and Sports (RTH.ASX) : 1 Pager
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Racing and Sports (RTH.ASX) : 1 Pager
Large recent contracts and opportunity for international growth; can the horse cross the chasm?
It’s been a busy week for me as I focused on crafting a comprehensive full-year results summary for 2 companies for A Rich Life. Additionally, I commenced the process of compiling a concise series highlighting 10 growth performers for the financial year. As I remain dedicated to working diligently behind the scenes on these tasks, I am keen to share another brief one-page overview.
In this month's one-pager, we delve into the story of a relatively new entrant on the ASX. Despite the challenging business landscape, this company has managed to maintain consistent growth since its listing.
Let's jump right in.
Business Summary
Racing and Sports (RAS) was co-founded in 1999 by Gary Crispe and Robert Vilkaitis, a compelling story of a domain expert (Gary) teaming up with a tech wizard (Robert) to create a powerful founding duo.
What began as a simple website gradually evolved into a full-fledged business, offering comprehensive horse racing data.
This is not a tale of explosive, exponential growth. Instead, driven by consistent improvement and dedicated effort, the founders recognised industry disruptions. The rise of digital betting sparked a heightened demand for accurate, well-structured data from betting operators.
Over the past two decades, the company gradually ascended to a prominent position in its niche. Today, Racing and Sports stands as a premier wholesale data and content provider, collaborating with some of the world's largest wagering operators. Gary Crispe handed over the reins to his son, Steven, who now assumes the CEO role.
Here are some of their clients (1800 racing centers across 30 countries), and their 4 products:
Compelling Events
Two recent compelling event makes now a good time to put the company on the watchlist.
#1 - Good value, long contract with Tabcorp
Contracts that get signed with a long time horizon and good dollar value are good proof points of a company’s value.
In May, Tabcorp signed a six year contract for RAS content and innovation to help Tabcorp transform the information available for punters through an enhanced experience.
The contract spans $5.4 million over the initial three years, with the same value for the following three.
#2 - ARR surpasses the $10M milestone
In calendar year 2023, Racing and Sports’ ARR (they call this AMRR) crossed the $10M threshold.
This achievement signifies the continued alignment of product-market fit in a positive trajectory.
Despite a slight recent decline in gross profit due to the launch of their fully managed trading service with Racebook HQ, which I imagine involves manual intervention, gross profit still grew by 27% over the past 12 months.
One aspect to keep a close eye on, and which I dislike, is the company's tendency to classify nearly all revenue as ARR (e.g., the reported revenue for the FY23 half-year was $5.7 million, while the ARR at that time was $11.2 million).
It might be beneficial to distinguish their Digital/Media and Consulting services segment as a separate revenue stream.
What needs to happen
#1 - International expansion is key
As the ANZ market shows signs of maturity, expanding internationally becomes crucial. The company's efforts have been directed towards growth in the UK and US markets.
While not a new venture, the company had previously inked an international data deal with Tabcorp for the UK and Europe back in 2010. Similarly, in 2022, they secured a contract with TVG for enhanced international data in US format.
Despite these initiatives, international revenue remains modest in comparison to the potential it holds.
Demonstrating increased momentum in these international partnerships and contracts is vital for future growth.
#2 - Cashflow breakeven needs to be reached.
In the latest report, the company disclosed a cash burn of $424k during Q3.
With $8.6M in cash reserves as of the last quarter-end (and considering the pending R&D rebate), the company isn't imminently at risk of needing additional capital for operations.
Nevertheless, the focus on achieving positive cashflow is persistently on the horizon.
Attaining this milestone sooner would be advantageous, bolstering their financial position and enabling opportunistic moves if a strategic acquisition opportunity arises.
This would also place the company on the radar of many investors who remain averse to cash-burning enterprises, a sentiment amplified by the aftermath of 2021.
Conclusion
Racing and sports falls in a nice category:
Humble and unsexy, it avoids the spotlight.
Focused on customer engagement rather than flashy presentations (I don’t think they found Canva yet…).
Rooted in founder leadership and family values.
At today’s current valuation, one could make a case that it wouldn’t necessarily take home runs for nice returns to come.
However, my attention will center on two key catalysts I highlight here, serving as further evidence. If these are successfully executed, I may revisit with an in-depth analysis a year from now.
Previous 1 Pagers
Felix Group (ASX:FLX) : 1 Pager - June 2023 - Link here
Beamtree (BTM.ASX) : 1 Pager - July 2023 - Link here
Kinatico Ltd (KYP.ASX) : 1 Pager - August 2023 - Link here
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