Jumbo Interactive Limited

JIN Details

Signing of Binding Term Sheet: Jumbo Interactive Limited (ASX: JIN) is a leading digital retailer of national jackpot lotteries and charity lotteries. The market capitalisation of the company stood at ~$752.50 Mn as on 19^th October 2020. Recently, the company notified that its wholly owned subsidiary TMS Global Services Pty Ltd has inked a binding Term Sheet with Lotterywest in order to negotiate and enter into a detailed 10-year agreement, wherein, it would provide its online software platform and services. Under the terms of the agreement, JIN would provide a “Powered by Jumbo” software platform to Lotterywest “White Labelled” with Lotterywest branding. In addition, JIN and Lotterywest are working on finishing the software integration by 21 December 2020 to enable the direct purchase of tickets Lotterywest’s gaming system in real-time.

Decent Growth in Topline and Bottom Line: Despite the COVID-19, the company reported revenue amounting to ~$71 million in FY20, reflecting a rise of 9.1% year over year and witnessed a growth of 8.7% in ticket sales (TTV) to $349 million. This was supported by increased customer activity and Gatherwell acquisition. Underlying EBITDA and NPAT for the period amounted to $43.2 million and $26.5 million, respectively. In addition, COVID-19 has been proved as a growth driver for the development of Internet lotteries as a result of the “play from home” focus and the absence of any supply chain issues. The company declared a fully franked final dividend of 17.0 cents per share.

Dividend History (Source: Company Reports)

Outlook: The company is working on the vision to reach $1 billion in ticket sales on the Jumbo platform by FY22. In addition, the company is in a decent position to capture future growth opportunities on the back of extended reseller agreements with Tabcorp to 2030. The company has scheduled to conduct its 2020 Annual General Meeting on 29^th October 2020.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company ended FY20 with healthy balance sheet comparing net assets of $79 million and a cash position of $72 million. The 52-week low-high range for the stock stands at $6.990 - $27.730, respectively.  On a technical front, the stock of JIN has a support level of ~$10.437 and a resistance level of ~$15.172. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers such as Star Entertainment Group Ltd (ASX: SGR), Tabcorp Holdings Ltd (ASX: TAH), and Crown Resorts Ltd (ASX: CWN), which come under casinos and gaming sector. Thus, considering the decent growth in financials, shareholders return and healthy balance sheet, we give a “Hold” recommendation on the stock at the current market price of $12.220 per share, up by 1.410% on 19^th October 2020. 

JIN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Clover Corporation Limited

CLV Details

New Products and Customer Supported Sales Revenue Growth: Clover Corporation Limited (ASX: CLV) is engaged in the manufacturing and supply of functional food ingredients containing LCPs to the healthcare and nutritional markets. The market capitalisation of the company stood at ~$335.94 Mn as on 19^th October 2020. During FY20, the company recorded sales revenue of $88.3 million, reflecting a rise of 15.1% over pcp, which was supported by new customers, new products, and territorial expansion. In addition, the Australian, New Zealand and Asian markets have continued to grow, generated by the demand of infant formula, as well as increased interest in the health benefits of Omega 3 fatty acids. Net Profit After Tax for the period amounted to $12.5 million, reflecting a rise of 23.6% on a year over year basis. 

Financial Summary (Source: Company Reports)

Outlook: For FY21, the company is aiming new customers in Europe to match the new IF standards and establish online or third-party audits. In addition, the company is planning to deliver new product solutions to access new markets and applications.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company seems to be well-positioned for future investments on the back of decent balance sheet supported by the cash of $9.2 million and net debt of $5.4 million at the end of FY20. In the past one and three months, the stock of CLV has corrected 9.77% and 7.30%, respectively. On the technical analysis front, the stock price of CLV has a support level of ~$1.897 and a resistance level of ~$2.449. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Thus, in light of the improving financials, growth in segments, decent outlook, and key risks with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.040 per share, up by 0.990% on 19^th October 2020.

CLV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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