JUMBO Interactive positioned for growth

in Finance
 Updated on 
Younger people not keen to buy lottery ticket via newsagent
  •  Company aims to reach A$1 billion in ticket sales by 2022

The world’s best-performing gaming stock is winning big as more lottery hopefuls buy their tickets online.

 Jumbo Interactive Ltd., a digital reseller of lottery tickets, has surged 192% this year, besting other global casino and gaming stocks that have a market capitalization of more then $100 million, according to data compiled by Bloomberg. The Queensland, Australia-based company aims to triple its ticket sales by 2022, betting on a shift in how people enter the draw.

Younger people “are not really interested to buy a lottery ticket at a normal newsagent,” Jumbo Chief Executive Officer Mike Veverka said in a phone interview this week. “Even some of the older demographics that are used to going into a store to buy their lottery ticket prefer to buy it online.”

 Jumbo shares have soared this year on online lottery ticket sales

Lottery and scratch tickets are the most popular forms of gambling Down Under, according to a Roy Morgan study published earlier this year. About 40% of Australians aged 18 and older bought either ticket type in an average three-month period during 2018. In-store ticket sales are increasingly being replaced by the digital market, said Adrian Ezquerro, head of investments at Clime Investment Management Ltd. About 25% of Australian lottery tickets are bought over the Internet, more than double the amount of tickets sold online three years ago.

 Jumbo’s eye-catching rally hit a snag at the end of last month after the company’s annual general meeting, tumbling from a record high reached in mid-October. Veverka said the drop was a “strange one” considering that the trading update was positive, but he speculated that some investors may have thought the stock was too expensive. Indeed shares are trading at a forward 12-month price-to-earnings radio of 34, one of the highest among global gaming stocks, according to Bloomberg-compiled data.

No Competition

Jumbo started as an online retailer that sold various products, including tickets to an Australian charity lottery. As demand for those tickets grew, Veverka, an engineer, realized that selling lottery tickets over the Internet could be profitable.

“There wasn’t really anybody doing it,” said Veverka, who refocused the business around 2005. “It was something that didn’t have to be delivered physically, it was repetitive and something that the Internet really added a lot of value on.”

Winner, Winner

Jumbo is the world's best-performing gaming stock of 2019 

Source: Bloomberg

NOTE: Rankings among BICS Casino & Gaming stocks worth at least $100m; gains as of Nov. 13

The next boost for earnings will come from growth in the overseas markets after net income hit a record high in the first half. The company recently announced its entrance into the U.K. market with the acquisition of online lottery platform Gatherwell Ltd. U.S., the world’s largest lottery market, also provides potential, Veverka said, adding strict state and federal regulations are keeping most lotteries offline for now.

Morgan Stanley in a note this week maintained its overweight rating on the stock, citing its ability to bring lotteries online and potential to take its software to charity lottery markets abroad. The journey is not without risks. Regulatory change, management churn and lack of near-term jackpots could all hurt its growth, the bank said.