Jumbo Interactive Ltd

JIN Details

Jumbo Interactive Ltd (ASX: JIN) is Australia’s leading digital lottery company that offers a SaaS lottery platform to operators in Australia and globally.

H1FY21 Results Performance (For the Half Year Ended 31 December 2020)

Despite a 35% decline in large jackpots during the period to 15 against 23 in the pcp, the company has logged 9% growth in revenue to $40.9 million underpinned by material contributions from its SaaS and Managed Services businesses. Further, underlying EBITDA for the interim period increased by 3.7% to $24.1 million, a lower percentage growth than revenue mainly because of several one-offs. However, the underlying NPAT for the period declined by 5.8% to $13.95 million.

The company has declared a fully franked interim dividend of 18.0 cents per share.

Financial Highlights (Source: Company Reports)

Launch of Managed Services business

JIN, on 22 February 2021, launched a new business segment - Managed Services in Australia. It will provide managed lottery services to not-for-profit organisations including prize procurement, game design, campaign marketing, customer relationship, and draw management.

Key Risks

The group’s operations are exposed to broad risks including market risk, credit risk, and liquidity risk. The group’s foreign exchange risk relates largely to the Fiji Dollar (FJ$) and Great British Pound (GBP). Adverse movements in foreign exchange and interest rates will invariably affect earnings or the value of its holdings of financial instruments.

Outlook

JIN witnessed a promising start to the second half mainly in the lottery retailing business. Growing partnerships in both Australia and UK will drive the SaaS services business. The managed services business growth will be led by progress in Gatherwell UK partners and Managed Services, Australia. Meanwhile, it has kept the dividend policy of 85% of the statutory net profit after tax.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has given a softer close at $13.01 for the ongoing week but with a ‘Hammer’ pattern formed on the chart, implying potential bullish reversal. The technical indicator RSI with a reading around 46 and a curve at the end pointing down, suggests softening of momentum.

Going forward, the stock may have resistance around the upper Bollinger band of $15.17 whereas support could be around the 50% retracement level of $11.45.

Stock Recommendation

The stock rose by ~12.07% in 9 months and it declined by ~16.4% in 3 months. It has made a 52-week low and high of $9.49 and $15.820, respectively.

We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight premium to EV/EBITDA Multiple (NTM) (Peer Average), considering the acceleration in partnerships, as well as growth in Gatherwell business which is expected to augment managed services business of the company. For the purposes of relative valuation, we have taken peers like Aristocrat Leisure Ltd (ALL.AX), Viva Leisure Ltd (VVA.AX), Ardent Leisure Group Ltd (ALG.AX), to name a few.

Considering the aforesaid factors along with the resilient balance sheet, and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$12.990 per share, up by 2.931% on 12^th May 2021.

Note: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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