Consensus community valuation
$12.22
Average Intrinsic Value
8.5%
Undervalued by
Active Member Straws
#Reseller agreement
Added 2 weeks ago

Jumbo has signed a new 10 year reseller agreement with Tabcorp for the sale of their lottery products. 

This will cost $15m in an upfront extension fee, and a higher service fee per ticket sold, which will be 4.65% phased in over the next three years.

Full details here

It represents a higher cost, but is the longest reseller agreement ever signed and provides a lot of certainty (removes a good deal of counterparty risk) and still leaves Jumbo with very high net margins. The move should be seen as a temporary step down in earnings, rather than a sustained loss of growth in my opinion.

Jumbo also reaffirmed guidance for the full year, which is expected to see ~6% rise in revenue. It is hoping to roughly triple ticket sales by the end of FY22.

Shares are presently on ~9x sales for FY20.

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#Bull Case
Added 5 months ago

Quite an interesting stock right now and seems to be stuck in a heavy downtrend that it's struggling to find any positive momentum. No surprises in the HY report based on previous guidance and was interesting to see a huge increase of active customers, which shows some stickiness of their customers. Another small but positive charity SaaS licence signed in QLD and now sits on a PE of around 25 (woolworths is nearly 35 btw). If you have trust in management to deliver on their projections then JIN is looking extremely undervalued right now and when some positive momentum returns then adding more to my holding at current levels will feel justified. 

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#Bear Case
Last edited 5 months ago

With Tabcorp (TAH:ASX) buying Tatts, Jumbo is pretty reliant on contract renewals due 1 May 2022.  In other words there is supplier risks there.  TAH could negotiate more favourable terms for itself and JIN would have their hands tied, squeezing their profit margins.

On that note TAH does own just under 12% of JIN shares, and there are benefits to TAH to keep JIN selling their tickets.

Other issues that could affect the earnings are the random size of the Jackpots.  There has been more than average big Jackpots which make folk buy more tickets... This leaves revenue more lumpy.

Another issue is gambling preferences... Is Sportsbetting and online poker stealing the market off lotteries?  Think about the randomness of lotteries and the percieved better odds of your own poker skills, or the social interactions of sports betting.

Regulations are a bit of of a win and a lose for JIN.  Lotteries are highly regulated by state and federal governments which limits competition yet limits growth also.  To grow internationally is hard with the roadblocks that Foreign Governments impose also.

 

 

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#Bull Case
Added 5 months ago

The most valueable asset JIN has is its software and product development.  They spend approx 60% of revenue on this alone.

The "powered by Jumbo" is an interesting idea, where JIN can SAAS their platform to overseas Lotto Companies.  This is a win win as the amount of time and capital to build and constantly improve a secure, functional platform that integrates with new tech like i-watches is something that could appeal to other companies.

Jumbo reckons that only 7-8% of the global market is online, which leaves a huge potential opportunity.

If Jumbo can increase the amount of Charity Lotteries (which JIN "taxes" anywhere from 3% to 10% of sales) than that might mitigate some of the supplier risks.

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#Management
Added 5 months ago

Mike Veverka is CEO and Founder of JIN.  He owns 15%.  

All other directors seem to not have shares or options.

 

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#Financials
Added 5 months ago

They have no debt which is a great thing.  

They pay a dividend of 2.8% as of 17/02/20, however, their payout ratio was 78% in 2019, which may not be sustainable in the long term.

 

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#Moats
Added 5 months ago

The products that JIN sells have brand moats... eg "One Powerball" as well as OZlotto, lucky Lotteries ans Tatts Lotto

Also there could be scale benefits of the use of their digital platform.

 

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