'You'd be a Dumbo to ignore Jumbo'

WEALTH

Jumbo Interactive a $3-plus stock

• JONATHAN WILSON
• The Australian
• 12:00AM July 18, 2017

Jumbo Interactive
ASX code: JIN
Share price: $2.83
Industry: Consumer services
Forecast FY2018 distribution: 14c + 15c per share, special, fully franked
Only two months have passed since lotteries e-tailer Jumbo Interactive appeared in Dividend Detective, but already it’s time for an update. Picking up where we left off, Tatts’ nemesis and global lotteries waging provider, Lottoland, had recently acquired a 7 per cent stake in JIN.
It was assumed at the time this might trigger a move by Tatts to block any potential for Lottoland to gain control of JIN, and with it, access to JIN’s prized database of two million qualified leads.
As it turned out, a few days later on May 12, JIN announced a new agreement with Tatts, with all short-term state-based reseller arrangements extended for five years, conditional on any competitor’s stake in JIN being limited to 10 per cent.
Tatts itself took a 15 per cent stake in the company via the issue of new shares, and a Tatts representative was invited to join JIN’s board.
Later, on 30 May, JIN guided for earnings to lift an expected 21 per cent to $5.7 million driven by exits from the loss-making international venture at the end of last year. The dividend policy also moved to a higher payout ratio of 85 per cent of earnings.
Previous doubts about JIN have been put to rest, with clarity about its relationship with Tatts and the company signalling confidence in its earnings capacity via increased dividends. Shares appreciated in the last 18 months from $1 to over $2.80, but there are still opportunities for investors.
Recently JIN has also quietly positioned itself as the online distribution partner to some of Australia’s largest charity lotteries. About $1 billion of charity lottery tickets are sold in Australia each year. It’s a big market, and most charities use rudimentary marketing techniques to sell tickets, so their margins suffer.
JIN’s platform can handle all the communications, ticketing and prize distributions. It offers charities scale and reduced costs, even while JIN maintains its own healthy margins.
To cap an eventful couple of months, JIN announced a 15c fully franked special dividend (record date: July 25). After the special, JIN will have $9 million in franking credits and about $30m net cash to fund investments and dividends. The stock is worth well over $3.
Jonathan Wilson is an analyst for the Clime Smaller Companies Fund.
www.clime.com.au/cscf