Good writeup by Huntleys

EBET LIMITED (EBT) $0.18½

Gaming products & Services Spec Buy

No. Shares: 141.6m Avg. Monthly t/o: 7.6m

Mkt Cap: $26.2m Last Reviewed SCG 282

52 Week High: $0.295 Low: $0.13

A Nifty Investment

In what should be regarded as a major positive move
former Premier of NSW "Nifty" Neville Wran has been appointed chairman of EBT. His intellect and door
opening potential are both a real plus for this company which definitely seems on the verge of profitable
trading.

Critical mass achieved

We suspect the last of the loss figures has been reported by Ebet in the December half year. In classing the
stock as a spec buy at 17 cents in SCG 282 we reported that the December quarter saw EBITDA positive
trading estimated at around $450,000 and that the company had definitely hit critical mass.

For the half turnover increased 60.3% to $4.91m with a loss of $1.584m being reported. Of that total $1.26m
came from amortisation of non-current assets and a further $107,000 in depreciation. Operating cashflow was
actually a positive $552,00 while EBITA was negative $151,000 compared with an EBITA loss of $1.885m
in the pcp.

Cashflow in the March quarter which incorporates the quiet January period will probably have been negative
but trading for the June half should be cashflow positive and profitable ahead of expansion in the USA.

From here there is the potential for a rapid growth in turnover and profitability both in Australia and
overseas.

Strong interest in cashless gaming

Cashless gaming has started strongly in Australia and regional distributors are now being sought. That will
give more rapid access to the market as most distributors will probably be companies which service poker
machines. Significantly management is also looking for overseas distributors but is first customising products
to meet US standards and machine protocols. That approval process should finish by mid-year with revenues
starting from US cashless gaming next year.

The cashless gaming product enables credits to be rapidly transferred from one machine to another and
minimises down time for electronic gaming machines. With most jurisdictions now limiting the number of
machines, the clubs or hotels are looking to ensure the maximum possible playing time. Ebet estimates clubs
can save $1500 per machine per annum in operating costs by having the cashless gaming system. The benefit
for EBT is not just the up-front sales consideration but an ongoing maintenance fee of more than $400 per
machine per annum.

US potential is significant

More growth is likely to come from the USA gaming area through joint venture partner Penn National
Gaming. Under the 10 year license agreement EBT will derive between 2% and 3% of internet turnover
generated under the deal.

Turnover in the US has compounded at almost 15% per month in the last six months. This is likely to
substantially increase in the short term following the announcement by Penn that a content license and
marketing agreement has been signed with a leading global internet company. This is thought to be with the
largest internet player in Yahoo which will give punters a similar online betting service to that offered through
Penn's Playboy connection. There is one major difference however with the major internet players having the
band width to enable broadcast of the races over the internet to the customer as long as the customer has the
band width to play it. The latest deal should be operational by late June giving a flying start to FY2003.

In Australia internet betting is around 5% of total turnover. Currently total betting in the USA is only
thought to be around $15bn but the expectation is that the internet percentage will quickly equal Australia.
With Penn signing up obvious turnover sites we are very optimistic of rapid turnover and profit growth.

With the recent strong turnover growth in the USA which probably has taken monthly figures to around
$3m, but still growing rapidly, we are expecting at least $50m total turnover and revenue to EBT of at least
US$1.5m next year. The majority of that will flow to pre-tax profit with costs being covered essentially by
some of the smaller deals.

Strong earnings next year

We have been expecting a profit above $4m or 3 cents per share next financial year and around 10 cents for
2003/04. The company has announced an EPS target next year of at least 2 cents and up to 3 cents per share
at the time of the appointment of Neville Wran but we would regard these figures as being conservative.
Given the growth in the USA our estimates appear eminently achievable which makes the company a strong
buy.

The distribution of Ebet shares to its shareholders by Eglobal and a share purchase plan for up to $3000 of
shares at 18 cents by Ebet shareholders has eased the share price back from the mid 20 cent level. This we
believe is providing one final opportunity to get set at reasonable prices. EBT has hit critical mass and looks
to have a strong growth profile. If our earnings estimates are achieved there is no reason why a stock such as
this with its growth profile would not sell on a PE of 15 or even 20 times earnings which should give strong
outperformance over the next two years.