Jumbo Interactive’s inaugural strategy day served to demonstrate the company’s global software technology expertise. It underlines that JIN is a lotteries service business, plus a retail operator via its relationship with The Lottery Corporation.
JIN has operations in three segments – Lottery Retailing, Software-asa- Service and Managed Services. The key revenue generating metric across all segments is growth in TTV (total transaction value) from which JIN derives its revenue.
Lottery Retailing remains a core segment. In 2020, JIN signed a further 10-year service agreement with Tabcorp (now TLC postdemerger) to August 2030. This is a highly symbiotic relationship. JIN is a very effective sales channel for TLC and represents about 13% of TLC’s digital sales. JIN’s core business is underpinned by TLC’s licenced lottery products.
By 2030, this relationship will be 25 years old and while non-renewal of the agreement remains a key risk for JIN, we see no reason why it would not be extended. By 2030, JIN’s service fees to TLC could be around $35 million pa compared to about $12 million currently.
JIN’s SaaS can be licenced for lotteries globally. JIN already has a strong base of customers, including LotteryWest in Western Australia, who use JIN’s lottery management platform.
Managed Services provides a platform for governments and charities. The government and charity sectors are key target markets where JIN can provide a ready-made solution in both software and services. JIN’s main markets are Australia, Canada and the UK but an entry into the lucrative US market is a future opportunity.
Future opportunities for JIN globally appear bright. Europe, for example, has about 65 lotteries and perhaps 5-6 contracts are up for grabs each year. The TTV of lottery sales is approximately A$150 billion or around 34% of global lottery sales.
JIN has made three acquisitions in the last few years that have added to the group’s credibility as a global provider of lottery systems. The addressable market is large, and we think JIN’s digital approach gives it an advantage as the software and technology is hard to replicate.
The US iLottery market is a US$5 billion opportunity but is in its infancy. JIN has made early but limited steps to establish its presence. This represents a blue sky option for JIN but is not currently a top priority.
Investment view
The near term will be driven by the integration of the recent acquisitions and the upcoming FY22f result in August. Further new business wins are anticipated but timing and magnitude are uncertain.
A more favourable jackpot run in Australian lotteries would be welcomed and this would be amplified by the changes made to the OzLotto game.
JIN has seemingly worked in the shadow of TLC for many years, but recognition of its technology and software is a catalyst for future opportunities and earnings.
Lotteries are seen as the most socially acceptable form of gambling and demonstrate very defensive characteristics. TTV growth is steady but unrelenting and JIN has a clever piece of the industry puzzle.
Risks to investment view
The regulation of lotteries could potentially change although this is a relatively mild part of the gaming sector. Demand might also change if consumer confidence falls or competition impacts on established products. JIN’s reseller agreement with TAH could also change.
Recommendation
We have retained our Buy recommendation.
