The Jumbo Interactive Ltd (ASX: JIN) share price has been one of the best performers on the ASX, up more than 300% this year alone. Is it too late to join the party?
What Do Jumbo Interactive Do?
Jumbo Interactive is a re-seller of lottery tickets in Australia under an agreement with Government licensed lottery operator Tatts Group which merged with Tabcorp Holdings Limited
(ASX: TAH) in 2017.
Jumbo sells lottery tickets for Australia’s most popular lotteries; Powerball, Oz Lotto and Saturday Lotto via its website and increasingly popular mobile app.
The company is lead by founder Mike Veverka who founded the company back in 1995 and still has significant ‘skin in the game’.
2019 Financial Results
Jumbo delivered an impressive set of numbers with total transaction value climbing 75% to $321 million which lead to a 64% increase in revenue to $65 million.
Due to Jumbo’s largely fixed cost base they enjoy high margins which means a large increase in revenue leads to an even larger increase in net profit. This is evidenced by the jaw-dropping 124% increase in net profit to $26.4 million.
The company announced a final dividend of 21.5 cents per share. This was on top of the 15 cent interim dividend and an eight cent special dividend paid earlier in the year, bringing total dividends to 44.5 cents for the 2019 financial year (FY19). Not bad for a company which was trading below $4 per share only 18 months ago.
What Is Fueling The Growth?
The ongoing migration from in-store to online lottery purchases is the driving force behind Jumbo’s astronomical growth. There was a 107% increase in new customer accounts and a 74% increase in the number of active customers which had risen to 761,863 as of June 30.
An increase in the number of large jackpots during FY19 also provided a boost to earnings with 49 jackpots of $15 million or more. For the sake of comparison there were only 32 in the previous financial year.
The increase can be partly attributed to slight changes made to the Powerball lottery which has made larger jackpots a higher probability. Thursday’s Powerball draw will mark the 4th $100 million jackpot in just over 12 months. As you would expect higher jackpots create extra public interest and further fuels the acquisition of new customers which leads to higher and higher revenue over time.
Ambitious Growth Plans
Jumbo has plans to grow its total transaction value to $1 billion by FY22. If management is successful in executing on the plan the current Jumbo share price is likely to severely underestimate its forward earnings.
Jumbo produces strong operating cash flow which has allowed it to continue to grow whilst simultaneously paying a number of special dividends and remaining debt free. With $85 million of net cash on the balance sheet the company is well positioned for its next leg of growth.
What Will I do With My Jumbo Shares?
I was one of the lucky ones who bought Jumbo at less than $1 and have had the pleasure of enjoying the ride up. I sold about a third of my shares in May this year at $18 which now looks a bit silly given the current share price is just shy of $25.
I will continue to hold the remainder of my shares for now as I believe there is significant growth still to come and with the shares just entering the ASX200 Jumbo is likely to garner much more attention from fund managers going forward.
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At the time of publishing, Luke owns shares in Jumbo Interactive.
