The Lottery Corporation (TLC)
BUY

Weak but not forever

 23 Aug 2023
Sector: Consumer Discretionary

RESULTS ANALYSIS

Need To Know

  • Weak result. Revenue in-line, higher cost's drive miss on earnings.
  • Potential new Friday lottery to generate earnings upside for FY24+
  • Stock is well held, market willing to look through weaker result. 

Result Overview: 

Revenue $3,513m vs $3,578m consensus

EBITDA $713.2m vs $738m consensus

FY23 DPS 5.0cps vs 6.4cps consensus

Net debt was A$2,210m 

Gearing (ND/EBITDA) 3.1x, up from 2.6x at Dec 22. 

Investment Implications

Weak result due to higher cost and inflationary pressures. Negative operating leverage expected in 2H due to weaker run of jackpots. Lotteries digital penetration was stable over the half at 38.4% whilst Keno digital penetration saw minor deterioration, down 0.8% to 13.9%.

TLC indicated that the group will be looking to introduce a new Friday lottery product which should compliment the already existing Monday and Wednesday product.

FY24 guidance:

  • BAU CAPEX $60-70m (vs $65m in FY23) 
  • D&A Guidance $110-115m (vs $98m in FY23)

Investment View

A weak result due to the cost line. We expect inflationary pressures are to blame there so the market may be willing to look through the weak performance. Alongside this, the mention of an additional lottery should provide TLC will be expected to produce small dingle digit earnings upside into FY24. TLC is trading in-line with its longer-term average PER of 28x.

Re-affirm Buy rating. 

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Stock Overview

Share Price

Company Overview

TLC is Australia's largest operator of Lottery and Keno games. Lottery operations fall under 'The Lott' umbrella brand, spanning all states except WA.

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