Jumbo Interactive is a Brisbane-based digital lottery software company whose main source of earnings currently, is a 10-year agreement with Tabcorp as a retailer of TAH’s lottery products via its OzLotteries.com.au website. JIN has diversified its operations to become a provider of third party SaaS and managed services to other government and charity lotteries in Australia and overseas.
JIN’s core business is re-selling lottery tickets for TAH across Australia except for Queensland and WA. JIN has a separate 10-year agreement with LotteryWest in WA.
The company’s SaaS business has been expanding into a Managed Services business providing more comprehensive services such as game design, marketing and draw management. In 2019, JIN acquired UK company Gatherwell as a third party provider of lottery management services to local authorities and schools across the UK. JIN derives revenue from this business as a percentage of the TTV (Total Transaction Value).
JIN has been looking to expand its international business further and the acquisition of StarVale Group fits tightly within this strategy.
StarVale is a leading UK External Lottery Manager and digital payments company with a 25-year track record. It provides services to over 850,000 active players across more than 45 charities and not-for-profit clients. TTV in CY21 is about £63 million which generates revenue of approximately £9.6 million and pre-tax profit of £2.0 million.
JIN is paying ~A$32.1 million up front and A$7.5-8.5 million of deferred consideration in June 2023 subject to earnings hurdles. Funding is from a new $50 million debt facility ($30m to be used for the acquisition) and is expected to deliver low to mid-single digit earnings per share accretion in the first 12 months.
This acquisition will lift JIN’s total active players in its Managed Services division from 1.8 million to 3.4 million in FY21 on a pro forma basis. This includes JIN’s other acquisitions of
Gatherwell and Stride (in Canada). It will enable JIN to leverage its own platform to further drive growth and efficiencies for its clients.
Investment view
JIN is a high quality lotteries pure play living in the shadow of TAH’s lotteries business. JIN certainly has a close relationship with TAH through its reselling arrangement, but JIN has its own set of characteristics that make it an attractive proposition.
Growth in lotteries TTV is the key underlying earnings driver and therefore also its main earnings risk if sales slow down.
TAH’s lotteries division is soon to be demerged from TAH and will attract a higher valuation multiple which may have implications for JIN.
The potential global market for lottery SaaS across charities and governments is estimated at $24.9 billion in TTV. Growth in this division suits JIN’s technology and expertise and hence the recent acquisition activity should be seen as positive.
We maintain our Buy recommendation on JIN.
