Jumbo Interactive: Ramping up the SaaS business

About the author:

James Lawrence
Author name:
By James Lawrence
Job title:
Analyst
Date posted:
23 February 2021, 3:00 PM
Sectors Covered:
Gaming, Professional Services, Fixed Interest

  • Jumbo Interactive's (ASX:JIN) 1H21 result was in-line with expectations as the company reported a 25.6% jump in TTV driven by the SaaS business ramping up.
  • As is traditionally the case in a poor jackpot environment, JIN reported Lottery retailing TTV growth that was flat, underperforming Tabcorp’s digital growth of ~21%. We do suspect that a reasonable percentage of TAH’s growth came from its existing retail channel as it incentivised newsagents to move clients online.
  • While we have tempered our expectations over the forecast period, we believe JIN is well placed to grow customers and TTV across all three of its new divisions.
  • We retain an Add rating on JIN with a revised target price (login to view), offering a TSR of +10% for investors based on current levels.

1H20 result – a quick recap

JIN reported 1H21 revenue of $40.9 which was up 9% on the pcp and was slightly ahead of our forecast of $39.0m.

Lower marketing expenditure than forecast resulted in EBITDA coming in at $24.1m (+3.7% on the pcp) ahead of our forecast of $22.6m.

Higher D&A and lower interest income offset some of this better operating performance relative to our forecast and the company’s underlying NPAT of $13.9 (-5.8% on the pcp) compared to our expectation of $13.8m.

Pleasingly the interim dividend of $0.18/share (fully franked) was in-line with our forecast.

Steady in an unfavorable environment

We believe that JIN’s result was solid in the current operating environment which saw cumulative jackpot values down significantly on the pcp (a key driver of JIN’s sales leverage and customer acquisition strategy).

As we have noted before, while jackpots have continued to run at lower levels in the current half, ticket sales have remained elevated which bodes well for JIN, particularly if jackpot activity normalises.

Importantly, still only 32% of lottery ticket sales go through digital channels and we expect this to continue growing strongly from current levels.

Changes to forecasts

We have made a number of changes to our forecasts and have split our forecasts across the three divisions. Following today’s release we now assume higher D&A expenses (due to increased IT spend) and lowered our interest income expectations.

We have also tempered our assumed dividend payout ratio to 70% (from 85%) following management’s comments that the capital management strategy is under review.

The overall change to our FY21, FY22 and FY23 EPS -2.6%, -5.5% and -7.8% respectively.

Keeping an Add rating

Following earnings changes our DCF based valuation and target price has increased (login to view). We retain an Add rating on JIN and believe the company is well positioned to grow SaaS TTV over the year ahead and also benefit from a normalisation in jackpot activity.

Key risks include COVID-19, national game lottery sales in Australia, digital sales penetration rates as well as the uptake of the charity lottery and Powered By Jumbo products.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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