Pinned straw:
I thought Jumbo Interactive delivered a solid 1H26 result and management foresee a very positive outlook. However, negative market sentiment continues to drive the share price lower hitting a 6 year low today at $8.52.
Consensus FY26 NPAT is c. 72 cps, and FY27 NPAT is expected to be c. 87 cps. That would put Jumbo on a FY26 PE ratio of 11.8 and a FY27 PE ratio below 10. That’s the lowest PE ratio on historical earnings over the last 5 years (current is 14). I’m baffled to understand why the market is so negative on the business.
For a business expected to have double digit earnings growth and a ROE over 30% the shares seem to be incredibly good value to me.
I expect that going forward Jumbo will pay a fully franked 4.3% dividend (6% gross yield) at the revised 50% payout ratio. I’m in favour of the business retaining more earnings to reinvest into growth and to reduce debt (currently 39% debt to equity).
I’m not the only one seeing value in Jumbo. Morgan’s liked the 1H26 result and have “retained their buy rating and $14.90 price target on the shares. Morgans was pleased with Jumbo's performance in the first half, noting that it delivered a solid result. In addition, it was pleased to see that managed services continues to build momentum and that underlying SaaS trends remain healthy. Another positive is that Morgans believes the company can de-lever its balance sheet in FY 2027, leaving it well-placed for the remainder of the decade”.
At the current share price I think Jumbo could reward investors with a 16% return over the next few years. I’m a happy buyer at these prices.
Held IRL and SM. Accumulating on weakness.
@Rick yes Rick, Im a holder here, it's part of my "the tail that doesn't wag" group of smaller holdings. IMO the story here is that the old story market share gains against TLC is long gone. TLC is now equal to JIN in convenience etc.. That leaves the movement to online, which is still there but shared with TLC and more muted.
so where to for growth?
They have bought a group of companies o/s, that in aggregate are reasonably large, but have been inconsistent (at best) so far. You would say they are lower-quality businesses, so possibly a lower PE rating for JIN. also they need to prove these up. That could take time.
Reading the transcript, it was also apparent that there is little interest in the group. a couple of questions and that's it.
So I would be cautious using past ratings; they are not reflective of the new reality for the group. i think its a show me story from here, with a group of new businesses. will take some patience for consistent attractive growth imo.
@Solvetheriddle Interesting that you mentioned TLC. TLC has been increasingly pushing direct-to-consumer online sales. In 1H26 TLC’s digital share of Lotteries turnover was up 80bps to 41.2%, despite low jackpot outcomes. They said they would be increasing their investment in digital to elevate the customer experience.
If TLC grows its own apps and websites, it could theoretically capture more of the online margin itself and reduce reliance on third-party sellers like Jumbo. But this is not new—TLC has been expanding digital for years.
Yes, it will be interesting to see how recent acquisitions contribute to growth in future. I think this will become apparent over the next few years. If FY26 and FY27 consensus earnings come to fruition, I think ROE will continue well above 30%, and with a lower payout ratio earnings growth should improve.
I suspect the key reason for the downward pressure on the share price is the horrible chart.
Out of interest I compared JIN’s FY24 metrics (when the share price reached $18) with the forecast metrics for FY26. I then back-valued JIN based on FY24 metrics using McNiven’s Valuation formula.
Based on FY24 metrics and requiring a ROI of 15%, I arrived at a valuation of $7.57 (while the share price was $18, PE 26) and I arrived at a valuation of $9.46 based on FY2026 metrics (current share price is $8.38, forward PE 11.5).
If I lower required ROI to 12%, the valuations increase to $10.28 for FY24 and $13.70 for FY26.
The point I’m trying to demonstrate here is JIN never deserved to trade on a 26 times multiple, and nor should it be trading on a low 11.5 times now.
I believe a fair multiple would be between 13 and 18 times based on a required ROI between 12% and 15%.
My theory is the share price has been correcting for 2 years and as a result the chart looks really ugly. The negative momentum had driven the share price past fair value and into deeply undervalued territory.
That’s my take. I could be wrong.
@Rick, I agree with you on this one and I bought JIN today at $8.54 prior to reading your post.
With a ROE of 38% and NPM of 27%, earnings and cash generation have been resilient considering the lack of large jackpots in 1HFY26.
I have it trading on even a lower forecast PE of 10.58 in FY26 and 8.83 in FY27 along with a FY26 gross dividend yield of 4.65% based on a conservative 35% payout ratio.
Their 1HFY26 result was either in line or beat consensus and management even upgraded guidance for FY26 so it is surprising to see the stock underperform so poorly since reporting considering the value on offer.
I am trying to work out what the market is concerned about as on my numbers the stock looks like a great buy especially if the large jackpot activity evens itsellf out. The only thing I can think of is maybe some income investors are bailing due to the reduced payout ratio or there is concern around the US acquisition and the weaker balance sheet but I would have thought the leverage was ok considering the strong cash flow.
I started writing this before @Solvetheriddle posted his thoughts, but there were some alignments in our thoughts. I agree that the easy money in Aus has gone away and I cringed a little bit when I saw their slides say they are best in class (that might not be the case for long)
Personally it seems like investors looking for a good div yield have exited and rotated into higher paying companies in the short term. @Rick The overall results were decent if you consider the acquisition, and the company TTV is growing so I agree the market has lost their interest in JIN for now. This may seem a bit harsh in the short term (especially if they can grow the number of jackpots in the US car market) but solvetheriddle is spot on about them delivering.
Other than the positives and commentary raised, I did see a few yellow/orange flags that have cropped up for me in their results.
1. Overall health of the lottery market - While the attrition rate has slowed, JIN has experienced a 25% fall in active lottery players over the past year. This phenomenon is not isolated and TLC are showing a reduction in active players as well. Mike did mention in the earnings call that their revenue and activity spikes on big powerball jackpots, but I still think that there is an element of the cost of living pressures reducing the overall demand for lottery products given the same is being experienced for TLC. Their lottery profits were down YoY and the only reason they grew for the half was due to the positive contribution of the
2. Marketing Costs - JIN were sneaky in their presentation slides noting a 2.7% cost per TTV (excluding promotions), their financials show that lotto marketing has doubled year on year. This is something to watch going forward, but hopefully this isn't the norm as its going to eat into profits.
3. Debt - JIN have been pretty good at paying down their debt so far, getting the balance down to $110m already after almost maxxing their $120m facility. Currently their debt to equity sits in the 85% range, which puts it in a high risk high reward play for the opportunity. Their interest due for the half was 1.5m, however this will be significantly higher in H2 with the interest applicable for the full 6 month period. This amount should be more than covered by profits from the new acquisitions, but means that we will still be a while away from those big dividends.
4. Dream US - What I wonder about is how good the US acquisition really is and how long its going to take to realise its full potential. Side by side the UK business is in a way better position and really looks like a great deal right now. While I acknowledge they have a smaller draw market and sometimes it will take time to recoup the value, the comparative marketing costs for their offering is quite high and reflecting 30% of their TTV! Overall the US business attributed a NPAT $681,000 loss after tax based on initial calculations shared in their full financials, which should be slightly positive at year end. These companies will need to scale significantly if they are to reduce the overall reliance on lottery reselling.
Other than cringing when they kept calling them the dream team in the call, its still a watch and see from here to see if they continue delivering. I'm also concurrently watching TLC to see how their focus on digital growth and improving the customer journey impacts JIN's overall business. I probably wont be adding any more for the time being.
Disc: Held SM and IRL.