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Why Jumbo Interactive could beat its FY19 earnings guidance

Lina Lim
Gambling chips dice and cards

Tabcorp Holdings Ltd (ASX: TAH) announced its FY19 results on Wednesday, but could this report foreshadow an earnings beat from Jumbo Interactive (ASX: JIN)?

What were the highlights from Tabcorp?

Tabcorp delivered a result that was within expectations, but its Lotteries and Keno operations did all the heavy lifting. The company cited that its digital lotteries turnover was up 73.5% versus pro-forma PCP, now attributing to 23.5% of total turnover (vs FY18: 16.8%). The company’s CEO, David Attenborough stated that “the new Powerball game delivered bigger and more frequent jackpots, and more winners overall, leading to increased customer demand. Active registered players were up 22.2% to 3.3 million, positively impacting revenues for other games.”

Does this bode well for Jumbo Interactive?

Jumbo Interactive is an internet lottery business that owns the well known OzLotteries.com. The company has been an absolute growth machine, with its share price soaring from $7.30 at the start of the year to be trading for $20.16 at the time of writing. In the company’s FY19 outlook update back in February, it cited a FY19 guidance of a 53% increase in revenue to $60.8 million and a 107% rise in net profit after tax (NPAT) to $24.2 million.

Jumbo leverages the rising popularity of purchasing lottery tickets online with the vision of developing and operating the world’s best digital lottery experience. Jumbo has brought new products to the table as the first online lottery operator to offer syndication in Australia, with other features such as “group play with friends” and compatibility with Google Assistant. Furthermore, Jumbo has also launched its own software-as-a-service to lottery operators. For example, charity lotteries and state/provincial-based lotteries that require lottery and software solutions can now access this through Jumbo’s cloud-enabled lottery system.

The company had forecasted roughly 40 large jackpots in FY19. Large jackpots are defined as Oz Lotto or Powerball Division 1 jackpots of $15 million or above. There has been a strong run of jackpots this financial year with 49 draws that were greater than $15 million with an additional two draws that were equal or greater than $100 million. I believe the high jackpot count and strong lottery performance from Tabcorp will result in Jumbo beating their own forecasts and expectations. 

Foolish takeaway

While Jumbo trades at a high price-to-earnings (P/E) ratio of roughly 90, a high P/E does not necessarily mean the company is unapproachable or too expensive. On Wednesday, the market witnessed a market darling, CSL Ltd (ASX: CSL) beat expectations to make a new yearly high of $234.00. While I do not recommend buying a stock the day before it releases results, Jumbo Interactive is definitely one to watch.

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Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and Jumbo Interactive Limited. The Motley Fool Australia has recommended Jumbo Interactive Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019