Jumbo signed an agreement with Lotterywest

Jumbo Interactive Limited (ASX: JIN) TMS Global Services PTY LTD will provide online software platforms and services for the next 10 years. I concluded the about. This follows the binding term seat signed and announced on September 29, 2020.

"I am glad that the contract with the Lotary West has been concluded on schedule and conditions as scheduled.

"This is a great achievement for Jumbo, establishing a lon g-term partnership and providing strategic opportunities.

The main contract conditions are as follows: 1. 1. Jumbo provides software platforms and related operations, technology, customer support, and development services through the White Label Platform, and 9. 5%of customers transactions Receive the fee.

2. The contract period is the first three years, and there is an extension option for another three years (3+3+4) for the next three years (3+3+4). The extension option is based on the absolute discretion of Lotterywest.

3. The customer ownership is transferred to Lotterywest as soon as the customer op t-in to the new white label platform.

4. Jumbo manages the white label platform customer support on behalf of Lotterywest, while Lotterywest supervises the marketing strategy for players. Jumbo can be sold to new or existing customers agreed with Lotterywest.

5. Lotterywest has an option to migrate white label players to the Lotterywest website and apps 12 months after the date of the go live scheduled for late December 2020.

The Agreement includes the customary cancellation rights for this type of service agreement that can immediately cancel this agreement if Lotterywest has a significant violation of Jumbo's obligations.

This announcement was announced with the permission of CEO and Executive Director Mike Veverca.

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Jumbo concludes a new SaaS contract with RSPCA Queensland Jumbo appoints a new CFO with the rise of business performance Jumbo provisional highest finance manager appointed person Jumbo Interactive extends the lottery contract with Lotry West Completed Jumbo and Starbert's acquisition Lottery West contributes record returns to Western Australian community Click to comment

Australia

Regulating the Game Confirms First Two Speakers of Masterclass Series

September 11, 2024

Reading time: 2 minutes

Organizers of the Regulating the Game conference, taking place in Sydney, Australia from September 10 to 13, have announced the first two speakers for the 2025 Masterclass series in Sydney.

Jay Robinson, Chief Stakeholder Relations Officer at Focal Research Consultants, will present a masterclass on the theme "Beyond Compliance - Safer Gambling Training and Building a Culture of Customer Care."

Organizers say: "Jay has deep global experience in developing and implementing safer gambling strategies that go beyond mere compliance, making him a compelling voice and leadership supporter of the industry.

"Jay's session will focus on creating a culture of customer care, providing participants with practical tools and insights to enhance player protection and responsible gambling practices. Coming from Canada, Jay's expertise is globally respected, making this session a must-listen for anyone looking to drive safer gambling initiatives."

Jay Robinson says: "Good training is not just a compliance checkbox. Effective gambling staff training goes beyond mere compliance and meets the real needs of both staff and customers."

"This masterclass will delve into how industry leaders, regulators and frontline staff across a range of jurisdictions can successfully build a safer gambling culture. This masterclass highlights the critical role leadership plays in supporting and sustaining training initiatives.

Ian Hughes, Chief Commercial Officer, Gaming Laboratories International (GLI) and CEO, GLI Australia, said: "Technology disruptors in the gambling sector are driving the growth of the industry and the industry. " Ian will be hosting a masterclass on the topic: "How emerging technologies can help gaming companies succeed". The session will delve into emerging technologies in the gaming industry and explore their potential benefits and risks.

Ian will cover key innovations such as cashless systems, microservices, AI and cloud-based solutions and discuss the impact on responsible gaming, privacy, security and AML/CTF compliance.

Jay Robinson and Ian Hughes are known as experts in each field, and their master class offers the latest trends and best practices. These sessions are designed to delve deeper into topics, promote exchanges, and provide practical insights that help participants navigate the rapid evolution of gambling regulations.

Paul Newson, a principal of Vanguard Overwatch, states: "REGULATING THE GAME 2025 has a maste r-class series with global experts like Jay Robinson and Ian Hughes. I am happy to be able to continue.

"These sessions provide practical learning and deep insights in important fields such as safer gambling, customer care, and destructive technology. For participants, the latest trends and their abilities. It is a unique opportunity to bring a strategy that can be improved and survived. "

Jumbo's biggest opportunity

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We may have been wrong about Jumbo Interactive. Jumbo buys lottery tickets from Lottery Inc. and resells them online. Two years ago, when we saw that Jumbo had this sole supplier (an Australian monopoly) and the pricing contract was coming up for renewal, our advice was simple: the company was too at risk of having its profits gobbled up (see Jumbo's time is up).

Key Points

• Resale division less important
• New lines growing strong
• Large market

A few months later, Lottery and Jumbo renegotiated their resale agreement until July 2030. Lottery halved the effective commission it paid to Jumbo and paid a $15 million extension fee up front.

Lottery had been paying Jumbo a 9% sales commission, but after the introduction of a new 3. 5% "service fee", it was 5. 5%. In 2024, this commission was raised to 4. 65%, leaving Jumbo with only 4. 35% of its original 9% commission. True to history, the irreplaceable vendor squeezed weak customers. Jumbo's lottery retail gross margins have fallen from 93% to 82% in less than three years.

A fresh set of eyes

Valuing a company is a dynamic process. We can change our minds, sometimes quickly, as new information comes to light and the industry develops. As we were reviewing Jumbo's recent financial results, an epiphany occurred to us: Jumbo is not just a ticket scalper in terminal decline. And the seeds of this are taking root.

When I saw the stock a year ago, lottery retailers accounted for 95 % of the revenue. Currently, it is down to 75 %, but sales have increased by more than 50 %. While the profits of the ticket resale and the margin were squeezed, Jumbo offset the fall by entering two adjacent businesses.

The first was to provide the unique software platform "Powered by Jumbo" to thir d-party (mainly government agencies and charity). Jumbo essentially, r e-packaging the software used i n-house to sell lottery products, and began to sell the software to other lottery organizations.

Jumbo immediately aimed at major international markets such as the UK, Canada, and the United States, and ensured gambling licenses and permission. The company currently has four SaaS (Software-AS-A-Service) clients in Australia and one charity in the UK. It seems that US customers have not yet acquired, but 14 of the 48 states in the United States have acknowledged digital lotteries.

Charity case

In addition to the SaaS business, Jumbo has acquired GATHERWELL, a British digital lottery company, and provided services to more than 1, 000 organizations that wish to operate small lotteries, such as local councils and schools. Further intentions to become a service provider, Jumbo acquired a Tride in Canada in 2021, operating a lottery and lottery for charity, and in 2022 the UK external lottery operating company, STARVALE.

In fact, we thought these acquisitions were a typical case where the walls were rotated after the trees were rotten. Our doubts were that the management team knew that the lottery retail department was sinking, and was trying to change the ship as soon as possible. Once the management leaves the original business or its core skill set, bad things tend to happen. If you become desperate, you will increase the risk of excessive payment for the acquisition.

Now I can't say so. The sales of these three businesses were $ 8 million for six months until December, and the gross profit margin was 94 %. In the full year, the profit of $ 20 million and nearly $ 6 million net income are expected. Given that the total purchase price of the three businesses behind this division was about $ 60 million.

Charity lottery and donation lotteries in Australia, the United Kingdom and Canada are about $ 5 billion. Jumbo's current sales are about $ 300 million in these countries, and market share is 6 %.

SaaS growth

But the real honeypot may be that SaaS business mentioned earlier. Sales of Jumbo's software platform (essentially a white-label version of its website), with Western Australia's LotteryWest as its main customer, are far more than we'd imagined. The number of active players on the SaaS platform surged 20% to 1. 3 million in the six months to December, and sales rose 19% to $4. 3 million, excluding inter-segment sales (oddly, Jumbo's sales figures are inflated because it licenses its SaaS platform to the retail sector). We don't like this kind of accounting, so we're using basic numbers in this review).

The market size for managed lottery systems is hard to pin down, since there are few software suppliers and the customers are mostly government agencies and charities. Still, our best guess is that this market is worth at least $2 billion worldwide, and we've seen estimates as high as $8 billion. Either way, Jumbo is still a drop in the pond.

There is a good chance that the SaaS division will do $10 million in underlying revenue this year. Keep in mind that this division was born out of thin air just a few years ago when the company decided to start selling recipe books in addition to baking cakes.

The gross margins are high at 97% and the company is not yet operating profitable, but the costs are mostly fixed costs - the costs of running a lottery retail division, anyway, excluding the sales team. The SaaS business should enjoy excellent operating leverage. At $50 million in revenue (a reasonable 5-year target given the market size), we expect EBITDA (earnings before interest, taxes, depreciation, and amortization) to be over $30 million and profits to be around $20 million.

What are they worth?

Taken together, these new businesses (SaaS and managed services) should be on track for $30 million in revenue and $6 million in net profit in 2023. With consensus forecasts calling for $32 million in net profit from all of Jumbo's operations, the new business already accounts for nearly a fifth of revenue -- something that would have been unthinkable just a few years ago, and hats off to management for the impressive transformation they've made.

We can easily see the new business achieving $70 million or more in revenue in 3-5 years, when StarVale is fully on track and continues to grow. If the current net margins of 38-40% on managed services are maintained and SaaS can leverage its operating margins, it could generate $20-27 million in net income.

You won't find many tech stocks with such margins and growth prospects trading below 30-35 times earnings.

Our only hesitation is that the SaaS division's revenues are still dependent on a relatively small number of customers, making revenues more volatile. We would also like to take a longer view of how the new business performs under the current management team, rather than riding on the momentum built before the merger, to gain confidence that the new management team has the necessary qualifications to lead the new business. Still, CEO Mike Vevalka has plenty of incentive to make the merger work, as he owns 14% of the stock (he hasn't sold a single share in the past five years, despite several opportunities to do so at higher prices).

A price-to-earnings multiple of $25-30 for the new business seems conservative, valuing the division at around $500-800 million.

Low-price lottery

Although less important, the Lottery Retail division still has another seven years with Lottery Inc. before the resale agreement comes up for renewal again. While service fee increases will further reduce margins, we think the division can still generate $90 million in revenue and $30-45 million in operating profit in the medium term. After all, even if margins decline, Jumbo will benefit from rising ticket sales and online gambling, and it has a ton of free cash flow. We value the division at around $400 million.

Adding all of this together, we think Jumbo is worth $900 million to $1. 2 billion, or $14. 50 to $19. 00 per share. At $14. 76 today, we're not going to go below fair value if we're pessimistic.

Resumes the price of $ 13 and a selling price of $ 20. This is quite conservative, but it is important to pay attention to various "shock risks" where jumbo is still exposed. Losing major customers can lose tens of millions of dollars from corporate value, and if lottery Corporation does not renew the license in 2030, the value of the retail sector will be greatly lower than the above estimates.

You must not fall in love with stocks, but it is also unreasonable to look at the shortcomings. The label of a ticket reseller that Jumbo has been posted for 20 years is invalid. hold

Important: Intelligent Investor is issued by Investsmart Financial Services Pty Limited AFSL 226435 (Licensee). Information is a general advice on financial products. Before investing, please check the product disclosure manual, taking into account your own purpose, financial status and needs. INVESTSMART FUNDS Management Limited (Re) is a responsibility of various management investment schemes and is related to licensing. Invest Smart Funds Management Limited may own, purchase, or sell the shares proposed in this article at the same time as this article or after the announcement of this article. Such transactions can affect stock prices. All business returns are in the past, and cannot be relied on as an indicator of future performance.

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Interesting Facts and Q&As about this topic.

The following content may be a combination of human power and/ or automatically generated content. This section is currently in beta test. If you have any incorrect points, please contact Analysts@intelligentInventor. com. au.

What are the main business models of Jumbo Interactive Limited?

Jumbo Interactive Limited mainly purchases lottery from The Lottery Corporation Limited and resold online. However, the company is diversified, licensing its own software platform to third parties and manages digital lotteries for charitable organizations and other organizations.

How has the jumbo interactive revenue configuration changed in recent years?

A year ago, lottery retail accounted for 95% of Jumbo Interactive's revenues. Today, that's down to 75%, and the company has expanded into software licensing and managed services, which have significantly boosted its overall revenues.

What new business lines has Jumbo Interactive entered?

Jumbo Interactive has expanded into two new business areas: licensing its proprietary software platform to third parties (SaaS) and managing digital lotteries for charities and other organizations. These new businesses have shown strong growth and high profit margins.

What is the potential market size for Jumbo Interactive's SaaS business?

The potential market size for managed lottery systems is said to be at least $2 billion worldwide, with estimates as high as $8 billion. Jumbo Interactive is still a small player in this large market, which shows great growth potential.

How has Jumbo Interactive's gross margins for lottery retail changed?

Jumbo Interactive's gross margins for lottery retail have fallen from 93% to 82% in less than three years due to changes in the commission structure with Lottery Co., Ltd. Margins are expected to fall further.

What are the financial expectations for Jumbo Interactive's new business lines?

For 2023, the new businesses (SaaS and managed services) are expected to generate more than $30 million in revenue and at least $6 million in net income. Looking 3-5 years ahead, these business lines could achieve more than $70 million in revenue and $20 million to $27 million in net income.

What is Jumbo Interactive's current valuation and price target?

Jumbo Interactive's current valuation is between $900 million and $1. 2 billion, and $14. 50 to $19. 00 per share. The reintroduced price guide sets a buy price of $13 and a sell price of $20, reflecting a conservative approach while acknowledging the company's growth potential.

Recommendation

Jumbo Interactive Limited - JIN Under $13. 00 Hold Until $20. 00 Sell Above $20. 00 Hold at $14. 80 Current Price $13. 40 at 15:10 (September 16, 2024) Review Price $14. 80 (June 7, 2023) Maximum Portfolio Weight Business Risk High Share Price Risk Very High All prices are in AUD (dollars). People who read this also read: We can help Call 1300 880 160 InvestSmart

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