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#HY21 Results
Added 2 weeks ago

Jumbo reported a 9% lift in revenue for the half year FY21, which came in at $40.9m. Not great, but there's a lot context needed here.

The demand for lotto tickets is very much tied to the size of the jackpot on offer. The large jackpots (eg $100m Powerball) draw in a lot of extra volume, whereas the saturday $2m is far less popular. TTV and revenues for Jumbo can be lumpy as big Jackpots arent consistent in their timing.

So the result wanst too bad when you consider large jackpots were down 35% in the 6 months period. Despite this, revenue for the reselling business was up 2.3%.

And this is by far the largest segment -- it captures over 90% of revenue for the business.

So this hides the really encouraging result, which was a 25% lift in Total Transaction Value (TTV) and a 200% increase in external SaaS revenues (albeit off a very small base).

Importantly, the run rate for TTV at the end of December was $120m pa, compared to the $39m they reported for this half. This will grow as already signed customers are onboarded.

So expect even more growth in this segment in the current half.

The new Managed Services division is also seeing some good early growth, and there seems some good potential there. I think it's a very neat offering that levereges off the company's know-how. 

Moving further down the income statement, Jumbo reported only a 3.7% rise in underlying EBITDA and a 5.8% drop in NPAT.

The reduced margins were to do with the new Service Fee to Tabcorp (that added over $2m in cash and non-cash costs), and also establishing expenses for the Managed Lottery Services business.

In regards to the former, although less ideal than the previous agreement, it's still a very good source of revenue for the business and one that now has a lot more certainty for the long term.

Overall, i think the dynamics of the industry are very supportive, and Jumbo is well placed to capture an increasing stake in it.

32% of all lottery tickets are now sold online, up from 28% last year. You have to assume that figure has a lot further to rise.

But the key thing to watch is for the growth in new SaaS business. That's the real growth engine.

Disc: held

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#H1FY21 Results
Added 2 weeks ago

Financial highlights

  •  TTV up 26% to $233m • Revenue up 9% to $41m
  •  Underlying EBITDA1 up 3.7% to $24.1m
  •  NPATA2 up 0.5% to $16.3m
  •  Interim dividend declared, 18.0 cents per share, fully-franked

DISC: Previously held

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#Launch of Managed Services Bus
Added 2 weeks ago

Launch of Managed Services business in Australia

Jumbo Interactive Limited (ASX:JIN) is pleased to announce the launch of a Managed Services business in Australia with the signing of agreements with two foundation partners - Paralympics Australia and St John Ambulance Australia (VIC) Inc.

The operating segment – Managed Services - provides a complete lottery management service to not-for-profit organisations including prize procurement, game design, campaign marketing, customer relationship and draw management. This segment compliments Jumbo’s existing lottery SaaS and Lottery Retail (OzLotteries.com) solutions.

“We are excited to launch the Managed Services business in Australia with our foundation partners Paralympics Australia and St John Ambulance Australia (VIC)”, said Mr Mike Veverka, CEO of Jumbo. “The addition of managed services in Australia is aligned with our vision of “making lotteries easier” and will assist many not-for-profits meet the challenges of COVID-19 and continue their fundraising efforts via a digital lottery program”, he added.

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#Top20
Last edited 3 weeks ago

JIN - getting to know your Top 20

disclaimer: with the JIN annual report being prepared so soon afterthe balance period the two comparable Top20 lists are as at July 2019 and 2020, so the "most recent" list is already nearly 7 months old

Jumbo Interative has an interesting pattern shown between to two comparison years, where the Top 20 scaled back their holdings to go from 75% to 65% held as at 2020.

On the surface of things the back drop of course was that this period 2020 was right in the middle of the pandemic year with much of the country experiencing lockdowns and work from home or being eligible for JobKeeper / JobSeeker subsidies at lower levels of income.

Alongside a number of business changes for Jumbo, I believe that the services of Jumbo were seen and judged to be very much Consumer Discretionary ones, and therefor in part played into the sell down while peoplle were being more concerned about household finances.

Key Points:

  • The Top 20 constituents are a listeing of fund managers and investments businesses in the main part
  • There are only 4 current substantial members in excess of 5% (dropping from 5 in 2019)
  • most of the Top10 holders took money off the table at on average 10% to 50% of their holdings
  • current CEO and Founder of the company Mike Veverka is the number 1 and 10 holder and has not sold any holdings over the period and is also an Executive Director
  • Four shareholders dropped out of the Tope 20 from 2019 and where replaced by four new holders in 2020, each of those on average holding fewer shares than the members who exited, inferring that those exiting members also sold down their holdings from 2019
  • new member to the Board and current Chairman Susan Forrestor joined the board with a nil holding, however 1 month later on both the 1st and 10th of October purchased 7,500 and 2,500 shares at a prices of $13 and $11.90 respectively
  • with most of the holders in either years having the less than 5% threshold, there are not alot of Substantial Holdings announcemetns to review since the July 2020 period.

 

With the share price now off the $10.55 low which coincided with the date the Top 20 was prepared there does appear to be a return to the company by investors monies with the ma50/200 crossover indicating a very slight uptrend since the March 2020 sell off to currenlty be just over $15 (mid Feb 2021)

 

Jumbo however, and unlike many other stocks, has not recovered to pre-pandemic share price levels, so it may be possible that many of the fund managers are not as bullish as previously.

 

 

 

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#UK Approval
Last edited 3 months ago

Although not marked as market sensitive, Jumbo Interactive today announced that the British Gambling Commission (GC) has approved and issued a remote gambling software license to Jumbo. 

This allows the company to sell its SaaS platform to GC licensed operators -- and is a key step to drive growth in the UK charaties market. That's a huge market btw -- with over 168,000 charities that have over 77b  pounds in revenue

ASX announcement here

Shares have been on a good run recently, up 27% in November.

Disc: held

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#Lotterwest agreement
Last edited 5 months ago

Jumbo has signed a term sheet with the WA Govt. owned Lotterywest to negotiate an agreement to supply it with its Powered By Jumbo lotteries platform.

The details will be worked out in the coming momths, but key terms include:

  • Jumbo will receive a service fee for each transaction on the platform
  • A 3 year initial term, with options to extend for a further 3 and 4 years.
  • Customers on the white labelled platform will be owned by lotterywest

Exisiting Jumbo clients in WA contributed $33m in totall transaction volume (TTV) last year. Exactly how the margins will differ with the service fee as compared with the current arrangement, and how players may transition to the new platform is not really clear.

But it seems likely it will mean a net increase in the TTV Jumbo is exposed to in WA, and gain some contractual certainty for a good number of years.

The software integration is planned to be completed by the end of 2020. 

Announcement here.

 

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#thoughts
Added 5 months ago

Tabcorp selling their entire stake is definitely not a good thing. Im not so sure its a bad thing. It wasnt part of my thesis or the reason i invested in the first place. So i may see where this sell off lands and the share price settles, as it could present a buying opportunity at discounted prices. 

Given that the two companies now have a ten-year agreement in place, Im not overly concerned.

If management’s international expansion plans for its Powered by Jumbo software as a service (SaaS) business. Dont track as planned, then i will look at selling. Ill assess this as results come to light. Im not sure if foreign govt regulations will hinder this, they are just providing a platform? Happy to be proven wrong on that, i need to do more research.

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#Management
Last edited 6 months ago

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

All other directors seem to not have shares or options.

The chairman has resigned and is staying on until a replacement happens.  I dont think this represents a culture issue as he is getting on in his years.

 

 

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#Moats
Last edited 6 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.  

I think their moat is slowly being drained by Tabcorp, as they sell their lotto tickets cheaper, they just sold all of their Jumbo shareholding, renegotiated their terms for Jumbo to sell their tickets taking a bigger slice of the profit.

I am uncertain whether the Charity lotteries have a moat.

The restrictions by state and federal governments for lotteries keeps some companies out therefore keeping the Australian market to JIN and TAH.

Overseas there appears to be limited growth.  They do own 100% of Gatherwell which is UK's charity lotto provider.  This is a good start yet I am sceptical into how many other markets they may enter with government restrictions.

 

 

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#Bear Case
Last edited 6 months ago

With Tabcorp (TAH:ASX) buying Tatts, Jumbo is pretty reliant on contract renewals, recently renewed under less favourable terms until July 2030.  In other words there is supplier risks there.  TAH could/did negotiate more favourable terms for itself and JIN would/did have their hands tied, squeezing their profit margins.

TAH just announced the sale of their JIN shares...All of their shares.. just under 11.6% of Jumbo  The reason Tabcorp's CEO said “Following the recent extension of our long-standing commercial distribution relationship with Jumbo for a ten year term to August 2030, there is no longer a strategic rationale for Tabcorp’s shareholding in Jumbo. As a result, we have decided to monetise this investment, with the resulting capital to be used to further strengthen the balance sheet and support the move towards our recently revised target gearing range.”  Personally this is an alarm bell for me, but the logic is sound.

Tabcorp competes with the "Lott" by selling their tickets cheaper!!!  Their user numbers are growing substantially also.  Perhaps TAH will widen their moat and drain Jumbo's.  

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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#Reseller agreement
Added 8 months 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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