Noted the earnings trend staggering about also.

Difficult for buy full conviction here:

TNE: The Earnings trend could be better

Strong results as expected given the favorable jackpot run:

Finally step up in TLC fee now in the results, UK growing well, Canada a bit soft but appears to be a focus.

Hard to fault the results in any way and FCF of just under $53M. $68M in cash and about a billion-market cap. Accelerating buyback when sensible.

Not overly cheap but still results given results and execution - issue would be a slowing jackpot outlook. Interesting to see if digital penetration continues in Australian lotteries and how SAAS and managed service growth looks in a year or 2.

Well this South Aussie is back to work this morning.

No $150 Million for me.

Jumbo is giving a presentation at a Macquarie event today.

Included is a trading update for the first 10 months of the financial year:

Good growth is continuing, with increased service fees being somewhat offset by price increases.

If you pro-rata ytd performance, you get a FY24 TTV of $534m. They told us to expect a better revenue margin (last year was 20.3%, but based on the 2nd half to date that's more like 22.5%), so FY revenue should be around $120m, giving an EBITDA estimate of ~$59m (based on 49% EBITDA margin) -- both of which are only marginally ahead of FY23 results. Still, as we saw last year, volatile jackpot results can really move things around.

In FY23, they went from $72m in revenues for the first 10 months and then added $45m in the last 2 months!

So it's hard to know, but my best guess is that shares are on a forward PE of something like 22x, which isn't excessive given the nature of earnings and their momentum.

Not sure it's a level where a buy back is really warranted (they have the capacity to buy back another $25m if they choose). To be fair, for the first half they only bought back $3.2m at an average price of $12.74, so as long as they are disciplined and opportunistic, it's not a worry for me.

Held.

I always wonder about Morningstar analysts (broad brush). Maybe it is just a value tilt that hasn't worked for years or some other reason they always seem so far off on value - or how share prices perform - XRO etc as well.

JIN they're still at $13.10. Get a bit overheated at the moment but still.

First glance, hard to fault the results given the weak jackpot run in the half as well which impacted Australian lottery TTV (as we know this half has started very well).

Decent $31M in FCF or $62M annualized versus EV of about $930M - a current FCF yield of about 6.7% before what I expect the second half will be stronger. Nice dividend increase equating to about a 5% grossed up yield.

One more year of the TLC step up in fee.

Recent Acquisition

·      January 2022 Jumbo Interactive acquires StarVale to expand UK Business. StarVale is a leading UK External Lottery Manager (ELM) and digital payments company, and the acquisition aligns with Jumbo’s strategy to build scale in its Managed Services and Software-as-a- Service (SaaS) business segments. Jumbo will conditionally acquire StarVale for ~A$32.1 million4 (~£17.0 million), and up to ~A$7.5 million (£4.0 million) to ~A$8.5 million (£4.5 million) of deferred consideration, payable following 30 June 2023 and subject to achieving certain earnings hurdles. https://announcements.asx.com.au/asxpdf/20220127/pdf/455b5rf0k4lyrg.pdf

·      August 2021 Jumbo enters Canadian charity lottery market with acquisition of Stride. A$11.7m. Calgary-based Stride provides services to over 750,000 active lottery players in the Alberta and Saskatchewan provinces. https://announcements.asx.com.au/asxpdf/20210826/pdf/44zr50z8w859ch.pdf

·      November 2019 Jumbo to enter UK market with acquisition of Gatherwell Ltd. a private limited liability company founded in 2013 and located in Oxford, UK for ₤5.0 million cash (~A$9.1 million). https://announcements.asx.com.au/asxpdf/20191112/pdf/44bh7smh00t2bm.pdf

Is the 7% bump today just on the back of a big jackpot? No announcements…fascinating

After an unusually low number of jackpots last 6 months - a $150M Powerball next week should give a kick along. Same for TLC.

Following the previous post with the report from Morningstar I compared the price of tickets from Oz Lotto (Jumbo) and The Lott (Lotteries Corporation) on Tattslotto, Powerball and Oz Lotto for 18 and 36 games. Exactly the same product sold by both portals.

The annual revenue of nearly $119M of which $91M or 76.6% of Jumbos revenue is from Lottery retailing. This is a huge red flag. No mote and significant pricing differential. Not for me.

Selling INR

I don't think I'll ever get a job hosting 7:30.. Some of these CEO interviews are like Sean Hannity interviewing Trump..

So apologies for being a bit like a gushing groupie sometimes. But Mike represents so much of what I like in a CEO:

Plain speaking, humble, clear focus and vision, lots of skin in the game, founder, engineering background.

At this point, the guy is worth at least $134m (only counting his Jumbo shares) and he's still in there chasing a bigger vision. Last time he sold shares was April 2022, from what i can tell, and that was only about 5% of his total holding.

Mike stressed a couple times that it was their in-house developed tech that was their moat, saying it'd take (from memory) $100m and 3years+ for someone else to emulate their tech stack.(not that we should take that at face value)

fwiw, they only carry around $16m of capitalised development spend on their balance sheet (most has been amortised away) and last year they spent $6.5m on software development, and $5.5m the year before that.

I think his read on the regulatory landscape made sense -- why would government kill off a big source of revenue, especially when this form of gambling, er I mean "gaming", doesn't tend to have negative social impacts (unlike pokies).

Counterparty risk with ASX:TLC is not a thing until 2030, and at this point Jumbo have a much better negotiating position (although again, we may need to push back on that a bit for the sake of intellectual honesty). At any rate, Mike is clearly a long term thinker, and is looking to continue to diversify away from that single source of revenue, targeting 50% revenue from SaaS and Managed services by then.

In the meantime, they have wonderful cash flows to fund their expansion and it looks like they are being very conservative in their plans.

Anyway, capital light, founder led, economically acyclical, strong balance sheet and cash flows -- what's not to like?

I still think shares are reasonable value (see my valuation). Maybe I've been too kind on some assumptions, but even if you pull things back a bit I think you have a current price that is far from expensive.

Another way to look at it is that you have analyst's forecasting a FY24 dividend of 58c. Well, let's call that 50c which represents a forward yield of 4.7% (grossed up for franking), which aint bad for a company that has delivered such strong growth over the years, and that has plenty of runway left.

Anyway -- as always, keen for a different perspective.

I'm short on time today, but quickly, the Jumbo results look decent.

Management have reigned in cost growth (not that that was ever a problem), and reduced marketing spend (due to lack of large jackpots), which has helped deliver a 51% EBITDA margin, ahead of guidance for 48%, but down a bit on FY22 (52.9%).

TTV growth was strong, up 18%, which helped grow revenue by 14% and NPAT by 9% (ex amortisation of acquired assets). Active players up 39% thanks to acquisitions, but a good sign of future growth.

Free Cash Flow was the standout, up 21% (cash conversion was 146% -- basically, there's a good chunk of non-cash amortisation which is reasonable to strip out)

All debt has been repaid and the company has $53m in cash. Expecting 100% cash conversion in current year, so can easily fund growth and maintain a dividend payout of 65-85%.

So you have a business on a PE of 27 and a yield of 2.8% (fully franked), which should growth at a very decent rate when you consider the StarVale, Gatherwell and Stride acquisitions.

I dont think shares are 'cheap' per se. But not unreasonable given the quality and reliability of cash flows, as well as the ongoing growth potential.

[Held]

Jumbo's latest slide deck shows that there have been only 11 large jackpots (>$15m) so far in the second half (through to the end of April), and with a lower aggregate size. If you pro-rata the current half, the total aggregate jackpot size comes in at around half the previous second half.

We could see some bigger jackpots in the remaining couple of months (and statistically you'd probably expect that), but given where we are, and how highly ticket sales correlate with jackpot size, it'll be hard to get a good comp for the current half revenue wise.

Of course, this is just the nature of the industry and doesn't hold much relevance to business execution, but it is something to be mindful of.

Cost growth is expected to be in the range of 16-18% as the company continues to invest, but this is down from the previous year's 33% lift, and the underlying operating margin is now expected to come in at the higher end of the original guidance range of 48-50%.

Powerball (which accounts for over half their TTV) is increasing the ticket price by 10c, the first price increase in 5 years. But Jumbo is adding a further 10c to ticket prices. Given the price rise should also lead to more frequent large jackpots, it *should* be a net positive for Jumbo. In fact, on a pro-forma basis, this is expected to drive operating margins from 44% to around 50% from Fy22 to FY23

One small point, the company still has a buy back allotment of $25m, which only 10% or so has been used at an average price of $12.58 (current price $12.71, so maybe that's an area you could see at least some support.

All told, this business is a bit of a cash cow with good secular tailwinds and one that (at least historically) has proven to be very recession proof.

Disc. Held

Jumbo results solid with a few call outs to monitor moving forward

• Revenue growth overall of 18.1% to 62,389 million.
• Jackpots in Q2 helped drive this growth with number of jackpots for the half being 23 but the value of each of them up 10.3%, driven predominantly by 160m powerball. These jackpots are key to driving the growth in the lottery TTV and revenue.
• Number of active players up to 4million in the half, up from 333k in 2015 . Online ticket purchases are now at 38.4% of total tickets.

• Oz Lotto price increase of 15c or 10% on a ticket made no impact to sales . RPPU has risen 17%

• Comments on this acceptance by Mike and David on the call were all around reasonable increases in this inflationary environment with consumers understanding and willing to pay.

• Mike (CEO) and David (CFO) outlined Jumbo are looking to do this with powerball in second half 2023

Not sure if one can call this defensive but management were quick to highlight the resilient nature of the lottery business (see graph below).

NPATA, CF and dividends all saw increases in the half by 8%, 6% and 5% respectively

Watch

• Underlying EBITDA margins compressed to 48.8% from 53.7% in 2022. This was expected predominantly due to fee increase from lottery devision 2.5% to 3.5% which will rise again in 2024 to 4.65%.

• Gatherwell in UK saw turnover (TTV) fall by 9.6% in the half to 10,428m from 11,367m. EBITDA was impacted consequently due to rising cost which came in at 423k or 22.3% down from 545k. One segment of the business to monitor moving forward.

• Costs were up 28.1% to $22,544m driven by employee and other admin costs which each rose by $3,074m and $1,960m respectively

Overall need to admire the ability of Mike and the team to continue to execute over a long period in terms of CAGR, EBITDA and cashflow generation.

Disc Top 5 position in RL not on SM

Results slab bang in the middle of my expectations. Seems to be a lot of volume going on, up 3% to down 2% now.

Strong revenue growth but the margin hit from the step up in the lottery corp service fee hurt.

"Excluding the impact of acquisitions, Group TTV and Revenue increased 10.2% and 7.0% respectively with underlying EBITDA broadly flat on the pcp, reflecting an EBITDA/revenue margin of 49.8%. The underlying EBITDA margin was impacted by the step-up in the service fee paid to TLC."

My prior valuation of around $17 might be a bit ambitious with recent rate rises impacting multiples. 25x the reported EPSA (annualised) would get you to the current price. Still, I think JIN is not expensive and provides a good mix of income and growth. Will continue to hold.

$JIN announces that Mater Foundation has struck a six year extension of their SaaS agreement out to 2028.

It is good news that such an important customer has the confidence in the product to extend for such a term.

https://newswire.iguana2.com/af5f4d73c1a54a33/jin.asx/2A1426899/JIN_Six_year_extension_of_Mater_SaaS_Agreement

Disc: Held in RL and SM

Some notes from the Chair and CEO addresses:

• Competition for talent resulted in increased turnover & cost pressures, albeit to a lesser extent than peers
• Long term incentive structures in regard to share allocations to be measured against total shareholder return and per share earnings (good!)
• Healthy cash position and available debt facility provide "capacity for further strategic growth" -- i.e. expect more acquisitions
• Machine learning showing good results with a 3-fold increase in purchases of recommended products.
• Stride has significant opportunity to expand into other Canadian provinces
• As we all know, big jackpots are a strong driver of ticket sales and sign-ups. You can't predict when the big ones will come, but it's a mathematical certainty that they will.
• The recent $160m powerball saw 60k new player sign-ups
• Lottery TTV and revenue up 11% and 10%, respectively, from pcp
• Underlying SaaS TTV up 18% with all 5 clients fully operational
• Gatherwell TTV declined 7%, but revenue up 12% due to focus on higher margin services
• Maintain EBITDA margin target of 48-50% for FY23, excluding Stride and Starvale (FY22 was 52.9%)
• Recent acquisition will mean a significant higher rate of amortisation due to acquired intangibles. Non-cash of course, and things like customer lists really can be largely ignored imo. Software less so.

I remain a happy shareholder and think the business should be able to deliver annual EPS growth of at least 10-15%pa for the next 5 years or so at least, but possibly as much as 15%-20%pa.

Lots of cash on hand, and good free cash flow generation. An economically resilient industry. An aligned and capable CEO (who I have reached out to again -- fingers crossed he'll come chat to us soon).

Aside from the growth, shareholders should get a grossed up yield of close to 4.5% too.

I'm thumb-sucking a forward PE of 24 or so, which feels very decent.

Held.

The share price has taken quite a thumping of late and now sits at the same levels pre August reporting,  where the P/E was sitting around 90. With positive news recently involving the UK expansion and directors regularly buying, at current levels JIN looks attractive to buy more (or double up in Strawman world). The current P/E is around 47, which doesn't feel too rich with JINs current growth rate and with TABs 15% stake I wouldn't be too concerned about recent rumours, which could have assisted the share price fall.