Opinion Tickertrax Insights 10 cent CNS: Powering technology for mobile...

10 cent CNS: Powering technology for mobile gambling

Danny Deadlock, TickerTrax

1 Comment| February 5, 2016

Highlights: CNS Closes $7M Acquisition of 30yr Industry Veteran Using 50 Cent Paper / Aligns with Gaming Industry Titan SportRadar

Contagious Gaming (TSXV: CNS, Stock Forum) (10 cents)

www.contagiousgaming.com / www.digitote.com

Shares Outstanding: 82 Million / market cap $8 million

Through Ticker Trax we are following a small handful of resource stocks (including a couple very high quality oil & gas stocks like CQE.T) but deflationary pressures will remain a threat through 2016. Because of this I want to ensure we have good diversification through the tech sector (beaten down, but techs could still return as one of the stronger sectors in 2016).

A person wants to bottom fish these companies near a low while liquidity is decent. Valuations on a company like CNS can change rapidly on strong news or contracts so the most money is made buying stocks like this when others are ignoring them (and you can afford to wait patiently).

My main complaint with CNS is that their corporate communications (investor relations) is non-existent. This is something common with many techs and oil companies but CNS is particularly bad at it (I finally gave up recently trying to reach the CEO). While this is a “caution flag”, the valuation near 10 cents is attractive enough that I don’t mind the risk – given the strength of the technology backing the business model.

Moderately offsetting this frustration is their willingness to be aggressive.... (1) even when their stock fell to 10 cents, they still managed to close a $7 million acquisition using stock valued at 50 cents, and (2) last summer they tried taking over a much larger UK gaming company - but they never did agree on terms.

Important New Alliance with SportRadar

January 27th CNS announced that they entered into an agreement with SportRadar for the use of their virtual sports products - Virtual Football League, Virtual Horse Classics, Virtual Dog Racing, Virtual Tennis Open and Virtual Basketball League products.

Sportradar employs more than 1000 people and is "the" authority in sports data. There is a short video in the middle of their home page that explains this company - www.sportradar.com - they are an International powerhouse in the sports world.

Contagious Gaming recently acquired Digitote (explained below). For 30 years Digitote has been a leading provider of commercial-grade sports-betting technology across Europe. I am assuming that they will be able to utilize this enormous flow of data from Sportradar to develop some very impressive sports-betting products.

If you are familiar with Fantasy Sports (a hugely popular industry), you will know the world is in love with sports betting - even if it’s "virtual". The big Fantasy Sports websites have been in the media lately because of the money that is being paid out. Essentially they are finding ways to work around online gambling - which in most developed countries is illegal.

This is only going to last so long before governments decide that they are losing too much in taxation and gaming revenues. If they begin to crack down more on this Fantasy Sports industry, and decide they want a piece of the "legal" action, we could see a push in MANY countries to legalize sports betting online (through websites and mobile apps).

If the industry moves in this direction, Contagious Gaming will be at the forefront as there are a small number of players with the expertise to manage live (or fantasy) sports betting online (mobile in particular - which is the direction the world has been moving in).

CNS can also handle online casinos, online lotteries, and eGaming (a huge and growing industry for video game players who compete in giant tournaments for money - surprising, but true).

CONTAGIOUS BACKGROUND / OVERVIEW

CNS went public in September 2014 and raised $6 million (they currently have about $1.5 million left and would need to finance by spring of 2016 I suspect). They are a software developer focused on providing unique and engaging solutions for lotteries and regulated gaming operators around the world.

What makes this appealing in the 8 to 12 cent range is the acquisition of Digitote that they closed in December - but started negotiating last summer. This was a $7 million acquisition that included $3 million of earn-out over four years BUT $4 million in stock valued at 50 cents! As the share price was collapsing (as all small techs did since summer), I was sure this would never close under such terms. But it did.

Digitote has been around for decades and would not have closed that deal if they felt it wasn't worth it for them to take 8 million shares valued at 50 cents... when the stock was trading at a dime.

The combination of these two companies makes for a very interesting gaming software company - especially when online gambling internationally remains strong AND these guys are experts in mobile technology - smart phones and tablets. Mobile will remain the leader in tech growth and investment.

"Both the lottery and regulated gaming markets globally continue to become increasingly more mobile focused which is a key strength for us as we build out our business now and into the future." (Contagious Gaming CEO - Nov/15)

You can visit their websites to better understand their business, but here are the main points of Digitote - and why I feel that acquisition (combined now with SportRadar) makes this worth speculating on for 2016.

1) Digitote was acquired free of any long term debt, with positive working capital, $3 million in annual revenue ending March, and positive earnings of $800k

2) A developer and provider of commercial-grade sports-betting and horse-racing technology, hardware, and support services to operators across Europe. When combined with Contagious Gaming software, their platform will now provide mobile gaming technology for online casino, poker, bingo, sports and online lottery.

3) Digitote B2B software platform (Xturf) currently manages the sports book operations for a number of large and mid-sized customers in multiple regulated jurisdictions across Europe.

Key functions of the Digitote software include:

Multichannel management and player wallet for interactive (Web and mobile) and land based (retail and self-service terminals) operations;
Automatic odds adjustments and risk management capabilities;
Scanning and recognition of physical tickets, betting slips and customer cards;
Multilanguage and multicurrency capabilities;
24-7 customer and technical support infrastructure.
The Xturf platform is a proven platform with a 30-year record, including $10-billion wagers since inception;
Over 63 million betting transaction in 2014;
Thirty thousand unique events per month;
More than eighteen thousand live bets (in-running betting) offered weekly;
Up to 1,000 live fixtures per day;
Zero per cent downtime in 2014.
Thirty-year record of providing best-in-class technology to sports book operators in Europe handling over $10-billion wagers since inception;
Multichannel software platform offering live in-play and prematch fixed-odds sports-betting solutions through Web, mobile and land-based terminals with a single shared player wallet;
Pending United Kingdom Gambling Commission licences will provide the opportunity to leverage the Xturf platform to market sports-betting technology on a B2B/white-label basis to gaming operators in regulated jurisdictions.

The combined company will also aggressively go after the online lottery market in North America - including something called "eInstants" or "iLottery" Games - they are like digital scratch tickets. With 30yrs of Digitote experience and technology under their belt, Contagious Gaming can now pursue these markets with full credibility. Gtech is the global lottery leader but Contagious will now be in a much better position to compete PLUS Contagious Gaming are specialists in MOBILE gaming and this could become a very large growth industry over the next couple years.

www.contagiousgaming.com / www.digitote.com /

www.sportradar.com