Jumbo Interactive Ltd

JIN Details
 
Weak topline first half FY 17 performance: Jumbo Interactive Ltd (ASX: JIN) has posted fall in both TTV and revenue in the first half of FY 17, while the profit increased compared to the same period last year. The lower level of large jackpot activity in Australia in the half year was the main reason for the decreased TTV and Revenue. The large jackpot activity is an important driver of sales and can randomly fluctuate over time. During the first half ending December 2016, the large jackpot activity was unusually low with only $15 million of jackpots compared to $24 million in 2015, the large jackpots had an aggregate value of $345 million compared to $730 million in 2015, which is 37% lower in number and 53% lower in aggregate value in the 2016 half year compared to the previous period. There is a continued focus on cost management in both Australia and Germany, together with lower impairment/share of losses in an associate company that has resulted in the increased profit, notwithstanding the decreased revenue. Meanwhile, the TTV and Revenue of Proprietary payroll software program fell by 3.0% to $422,000 in the first half mainly due to lower marketing spend for the 2016 half year as compared to 2015, and there was a small decrease in profit of 4.2% to $264,000. 

1H 17 Financial Performance (Source: Company Reports)
 
Disappointing Online Lottery Segment performance: The Internet lottery segment revenue and other income posted fall of 9.1% to $16,282,000 in 1H 2017 as compared to $17,923,000 in 2015 after a decrease in TTV of 12.6% to $70,678,000 from $80,826,000 in 2015. This is mainly on the back of the lower level of large jackpot activity in the Australia Lotteries segment. Moreover, the TTV for the half year in Australia has decreased by 13.3% to $69,290,000 due to the lower level of large jackpot activity, which has led to a decrease in revenue by 9.7% to $15,589,000. The combination of lower TTV, revenue and other revenue, and lower expenses, has resulted in a small decrease in NPBT.
 
Scaling Germany Business down: During the 2016 half year, the business in Germany was scaled down with customers being referred/converted to Lotto24 under an agreement with them, and tickets were ceased being sold early December 2016. Moreover, there was reduction in operating expenses by 20.8% to $1,154,000 mainly due to approximately $400,000 non-recurring expenses in the 2015 half year relating to the restructure of the business undertaken in June 2015, and increased marketing.
 
Mexico activity was minimal: There was no meaningful opportunities in the foreseeable future in Mexico, so the activity is minimal and this segment ceased being reportable during the 2016 financial year. The NLBT for Mexico was $25,000 loss compared to $38,000 loss in 2015 due to professional services expenses.
 
Stock Recommendation: JIN stock has risen 26.13% in the last three months as on March 31, 2017, placing the stock at a relatively high level. Moreover, given the recent disappointing results from the group we believe that investors can book profits in the stock. We give a “Sell” recommendation on the stock at the current price of – $ 1.98
 

JIN Daily Chart (Source: Thomson Reuters)

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