This was another strong result for Jumbo.
Revenue growth of 17% to $83m represents a doubling since 2018. That's despite a transfer of customers to Lotterwest, on which they now get a lower margin of the transaction value (9.5% vs 20%).
Within retail, excluding this shift, revenue was up 17%
There was a change in the reporting structure too, with retail paying a 7.5% usage fee to the SaaS part of the business, and the commencement of the Tabcorp service fee -- all of which meant gross profit in Retail (selling lotto tickets on ozlotteries.com.au) was down 36%.
But when you factor in the Saas segment -- where there was more than a doubling in TTV and which operates at a near 100% gross profit margin (even though the TTV margin is lower), overall EBITDA was up 13%.
Operating cashflow was up 24% and there was $28m in free cash flow excluding the $15m Tabcorp extension fee. Jumbo even paid an 18.5c final dividend, giving shareholders a record year of dividends (excluding special dividends). The company has a cash balance of $50m and no debt.
For the company to pay out 85% of profits as dividends and still fund double digit growth is impressive, and testament to the strong cash generative ability of the business.
On one hand they are benefiting from the ongoing transition of lottery retailing to online and the associated available TTV growth. Market and market share growth have seen their TTV compound at 20% overthe past 5 years. No wonder they were keen to secure a long term agreement with Tabcorp here, it's a cash cow with them essentially making 10% on all tickets sold on Ozlotteries.com.au. The ratcheting up of the tabcorp fee will drag on margins, but overall it's an extremely reliable and attractive cash generator.
But the SaaS and Managed services segments are really the ones to watch. There's a lot of opportunity -- especially in places like North America and UK. They basically provide full lottery solutions out of the box, and though they get a much lower clip of the TTV, the TTV pie is potentially much, much larger and the unit economics of these segments are incredibly attractive.
This has been touted for a while, but i think there's some good evidence the company is executing well. 4 new clients have been onboarded, and the Gatherwell acquisition appears to be working out very well, where TTV has compounded at 26% per year over the last 3 years.
In fact, the $11m acquisition of Stride looks to be on point. Acquired on a 5x earnings multiple and EPS accretive from day one, it gives them a solid footing into the Canadian market. I also like how 70% is paid upfront in cash, with the remainder based on performance of the business (smart) and that the existing management team are staying on.
Shares are on a PE of 36, (based on underlying EPS of 45c) which just doesnt seem too much of a stretch for a company that has delivered attractive growth and is better placed than ever to capture more TTV. It seems a very defensive type of business too with a very strong balance sheet.
Disc: i own
