Shaw Stockbroking: EGOLI Recommendation @$0.23 ST: BUY eBet has...

Shaw Stockbroking: EGOLI

Recommendation @$0.23 ST: BUY

eBet has successfully launched its wide area linked jackpot in California.
The initial commissioning entailed only 76 machines at the Pechanga and Soboba casinos on Indian reservations. The total number of machines at those casinos has subsequently increased to 112 . In April the Morongo Casino, newly commissioned complex co-located with Pechanga came on board with an initial 20 premium units. Negotiations are well advanced for the signing up of a futher two casinos while discussions to continue over increasing the number of machines linked at each.
We expect the FY 05 results presentation to provide guidance in relation to FY 06 and details in relation to coin drop, which is currently precluded by commercial sensitivity associated with only having 2/3 casinos linked. Such insight should return the market's focus to both the potential growth available to eBet and the company's undemanding valuation. There are currently 42 casinos on Indian reservations in California- 26 of which have more than 1000 machines.

Ebt's earnings from the linked jackpot are largely sourced from a link fee. The initial machines linked had an average daily coin drop of US$2500 whereas the drop at Pechanga then ranged from $2000- $5000 per machine. Earnings are very strongly leveraged to total machine drop with its cost structure predominantly fixed making the model highly scalable.