Jumbo Interactive (JIN) is a leading digital retailer of both national lotteries and charity lotteries in Australia.
Strong jackpot run in 2H19
Following on from a strong jackpot run in 1H19 where Oz Lotto hit A$70m, we have seen that replicated in 2H19 following the recent run. This strong game performance coupled with an A$100m Powerball draw early in January should have driven ticket sales and resulted in high levels of customer acquisition. Jumbo Interactive has been highly successful in leveraging its existing customer base to drive revenue growth and also continues to lead innovation in the digital lottery space. Consequently, we sit ahead of company guidance.
Powered by Jumbo
The Powered by Jumbo platform offers a suite of products that can be utilised by the operators of lotteries businesses.
Given the expected commencement and ramp-up of the Mater Foundation software license agreement, and expectations of additional contracts, we have increased our earnings estimates from this new division. Given the Software as a Service (SaaS) nature of this business, it is highly scalable and profitable and we estimate EBITDA margins of approximately 80% rising to approximately 90% over the next few years.
It is early days for Powered by Jumbo but this product has the potential to contribute material earnings over the years ahead if successfully rolled out.
Changes to forecasts
We have made minor changes to FY19 forecasts (NPAT +3.2%), while our FY20/21 forecasts have increased significantly more due to expected continued growth in digital sales and the contribution from the Set-for-Life game. Our revenue forecasts have risen 20% in FY20 (A$80.7m) and 27% in FY21 (A$95.9m), while EBITDA now sits at A$52.1m in FY20 (up 27%) and A$64.5m in FY21 (up 36%).
As a reminder, JIN has grown TTV at a 5-year CAGR of 10.9%.
- Given JIN's strong cash position we expect a special dividend to be declared and paid before 30 June 2019.
- We anticipate JIN will likely upgrade guidance if there is a jackpot run in either the Oz Lotto (currently A$5m) or Powerball (currently A$8m) games.
Following earnings changes our DCF based valuation and share price target for Jumbo Interactive (JIN) has increased (Morgans clients can login to view).
Key upside risks to our valuation include higher national game lottery sales in Australia, improved online sales penetration rates as well as the stronger uptake of the charity lottery and Powered by Jumbo products. Downside risks are the opposite.
We retain our Add recommendation.
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