Several points re SA Lotteries (SAL):1. The deal with JIN was...

Several points re SA Lotteries (SAL):

1. The deal with JIN was done by incumbent mgmt of SAL.

2. SAL is currently up for sale with an expected time frame of late 2012/early 2013 for completion of the process. Tatts -- unsurprisingly -- has publicly expressed strong interest in getting its hands on SAL and is expected to be a strong contender in the sale process given its other related assets. So -- *if* Tatts gets SAL, and they picked up the last couple of gaming assets for sale: NSW Lotteries in 2010 and Tote Tasmania announced a few weeks ago -- then whatever Tatts does with JIN's other contracts would in all likelihood eventually roll through into the SAL contract as well.

3. SAL is not that large relative to the other jurisdictions JIN operates in (and the online side of the business will take time for JIN to ramp up if it follows the adoption rate in other states). SAL obviously helps and extends JIN's earnings duration, but I doubt SAL on its own would generate anything near the current earnings level that JIN currently enjoys given the scale differences against its existing operations. If you're relying on SAL for, as you term it, a "critical anchor" to valuation support at JIN prices around current levels I'd be very interested in an outline of the rough numbers behind your reasoning because I can't get there (without assuming Tatts rolls over JIN's existing non-SAL contracts).

4. I really don't see how SAL provides JIN any leverage with Tatts -- the contracts are for completely discrete geographic regions that have no competitive overlap. Why would the existence of a contract in SA affect negotiations for a contract in NSW for example? The issue for Tatts is whether it is willing to wear the temporary knock to turnover and earnings by cutting JIN off and I guess that'll depend on whether and how quickly it thinks it can recoup that business via its own channels (and that will probably vary from state to state).

Just to be clear. I don't know what Tatts will do. But I do hold the strong opinion that JIN's current share price requires either the Tatts contracts to be extended (which I do not view as a certainty although it's hard to peg the odds) or a big win in the US (which I think is longish odds). In other words, from my perspective, the current share price is assumng a higher level of certainty than I am willing to ascribe to these events.

Disclosure: bought in at 25-30c and sold out totally around 60c.

As usual, do your own research, treat the above with extreme skepticism and under no circumstances take any of my ramblings as investment advice.