Jumbo Interactive Limited

 
Stellar Growth Aided by Increased Digital Penetration: Jumbo Interactive Limited (ASX: JIN) operates in retail segment, which constitutes selling of lottery tickets through the internet and mobile devices across Australia and eligible overseas jurisdictions.

FY19 Operating Highlights for the year ended 30 June 2019: JIN declared its full-year financial results, wherein the company reported revenue from continuing operations at $65.2 million, up 64% on y-o-y basis and net profit after tax at $26.42 million, up 124.8% on year on year basis. The business reported total transaction value (TTV) at $320.66 million, up 75.1% from FY18. Online sales accounted for 23.5% of the total revenue driven by significant growth from Jumbo segment.  The company reported marketing expenses at $6,956 million as compared to $4,637 million while administrative expenses came in at $19,117 million, 17.4% higher than previous financial year.  As per the management, total expenses went up by 22.9% from last year. During FY19, JIN reported EBITDA margin of 61.6% as compared 48.8% during FY18. The business reported strong cash position of $84.6 million, as compared to $47.9 million as at 30 June 2018, backed up by 84% growth in general funds at $73.8 million and 37.5% increase in customer funds at $10.8 million.

 

FY19 Financial Highlights (Source: Company Reports)

During FY19, JIN informed that Tatts Online Pty Ltd exercised 3,474,492 options worth $8.2 million. The business reported capex of $5.2 million during FY19. JIN distributed a fully franked dividend of AUD 0.21500 of September 20, 2019. On the back of a new software platform, the business reported addition of 444,044 new accounts and number of active customers stood at 761,863.JIN reported average customer spend at $385.44 while cost per lead came in at $13.81 during FY19.

Outlook: FY20 was marked by a growth of 60.7% in TTV on pcp basis and a Powerball jackpot event worth $110.0 million during July 2019. For FY20, the Company is focusing on its digital assets and betting on annuity styled game, which has performed exceptionally well in Australia and has attracted younger generation. JIN is also focusing on growth in TTV generated from charitable lotteries and expecting growth in revenue from SaaS services. The business is also prioritizing on other areas like improving customer signups through digital innovation; working on the improvement of customer retention and focusing on younger demographics. Furthermore, the company has improved data analytics for presenting relevant information and will look for artificial Intelligence for high speed decision making. The business is aiming for $1 Billion in ticket sales from Jumbo platform by FY22.

Stock Recommendations: The stock of JIN is quoting at $22.210 with a market capitalization of ~$1.45 billion. 52-week trading range of the stock stands at $6.379 to $27.920 and it is trading towards the upper band of the range. The stock is available at a price to earnings multiple of 52.980x on trailing twelve months (TTM) basis as compared to the industry median of 18.1x. Enterprise Value (EV) to EBITDA of the stock stood at 32.6x on TTM basis as compared to 10.4x. The stock has delivered decent return of 20.27% and 36.05% during the last three months and six-months, respectively. JIN is targeting a ticket revenue of $1 billion from its jumbo segment by FY22. Considering the above factors and stretched valuations at the current juncture, we believe the stock has done exceedingly well in the recent past and has generated 238.74% in the last one year. Hence, we recommend an ‘Expensive’ rating on the stock at the current market price of $22.210, down 4.514% on 31 October 2019.

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