ASX code: JIN
Share price: $2.83
Industry: Consumer Services
Forecast FY2018 Distribution: 14 cents + 15 cents per share special fully franked
Only two months have passed since lotteries e-tailer Jumbo Interactive (ASX:JIN) 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 percent stake in JIN. We thought this might force 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 12 May 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 percent. Tatts itself took a 15 percent 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 percent 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 percent of earnings.
Previous doubts about JIN have been put to rest with greater certainty around its relationship with Tatts and with the company signalling confidence in its earnings capacity via increased dividends. Shares appreciated accordingly in the last 18 months from $1.00 to now over $2.80, however we still see opportunity in the stock.
Recently JIN has also quietly positioned itself as the online distribution partner to some of Australia’s largest charity lotteries. Also included in May guidance was the expansion of the charity lottery portfolio with the addition of Mater Home prize, one of Australia’s major charity lottery operators.
It may sound surprising, but about $1 billion of charities lotteries 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 on behalf of charities. It offers charities scale and reduced costs, even while JIN maintains its own healthy margins on ticket sales. A win-win.
To cap an eventful couple of months, JIN announced a 15 cent fully franked special dividend (record date 25 July). After the special, JIN will have $9 million in franking credits and about $30 million net cash to fund investments and future dividends. We think the stock is worth well over $3 and remain happy holders for now.
Jonathan Wilson is an analyst for the Clime Smaller Companies Fund