I agree @wtsimis -- Jumbo is an impressive company (i also hold here and in real life).
In the last 5 years:
- TTV has gone from $145m to $660m (CAGR of 35%)
- Revenue has grown from $32m to $104m (CAGR of 26%)
- NPAT has grown from $5m to $31m (a 6x improvement!)
Importantly, it's done this without too much dilution (share count is up 5%pa on average over the same time frame, and flat for the last 3 years), and it's consistently paid a dividend.
Solid structural tailwind in the switch to digital ticket sales, and they've built some impressive tech which now serves as its own white labelled SaaS product. Acquisitions have been sensible and with a clear strategic advantage.
As @Mujo reported, the company is looking to post improvements across all the key metrics for FY22, with TTV, revenue and NPAT up 35.5%, 27.1 and 15.8%
And yet, the market is (as I write) down more than 11% on the news. Why?
Well, margins are down across the board. EBIT margin has gone from 58% to 52% and the company expects this to further moderate to 48-50% in FY23.
I wont pretend that is good news, but a part of that is to be expected. Under the 10 year agreement with Tabcorp – signed in August 2020 – a service fee was introduced, and is based on the cost of ticket purchases from Tabcorp. It was 1.5% in FY21, 2.5% for FY22, and will be 3.5% in FY23, after which it levels off at 4.65% for the remainder of the agreement.
They are pretty sizeable steps, but none of it should be a surprise to the market
Jumbo did say it expected Marketing costs to be in the range of 1.5-2% of lotto retailing TTV. But here too, that's about in line with what they reported for the half year, which was at 1.8%. They've also said they tend to see a 5 month payback on marketing spend, so given the stickiness of players, i say have at it!
Perhaps the bigger factor is the jump in operating costs, which were 32% higher in FY22 and are expected to rise a further 20-22% in FY23. At the half they also pointed to this and attributed it to the appointment of a senior leadership group and a tighter labour market (in other words, increased salaries). This is something a lot of companies have reported, and only yesterday we saw just how tight the labour market is. I expect this to remain a feature for a while yet.
So not what you like to see. But to me it's not something that should undermine their ability to deliver attractive growth in operating cash flows. Less than would otherwise be the case, sure. But it's far from a deal breaker for me.
So, looking ahead, while no specific guidance was given, i'd expect continued organic growth and also a nice kicker from recent acquisitions. Starvale should add a further $10m in revenue with a full year of contributions, and Stride generates around $6-7m in annual sales. Also the SaaS and Managed services business seem to have good traction, and they are going after a $10b serviceable addressable market which is presently underserved and with high barriers to entry.
At present, you can buy shares in Jumbo for about 26x earnings and a 3.5% fully franked yield.
I've emailed CEO and founder Mike Veverka to see if he'd like to chat with us.
ASX announcement is here