Jumbo Interactive: FY22 Earnings - SaaSy
About the author:
- Author name:
- By Alexander Mees
- Job title:
- Co-Head of Research and Senior Analyst
- Date posted:
- 29 August 2022, 8:00 AM
- Sectors Covered:
- Gaming and Retail
- Jumbo Interactive's (ASX:JIN) FY22 was a year of solid growth in revenue and earnings. The business continued to diversify its earnings base, with SaaS now making up nearly half of group EBITDA. There were few surprises in the numbers, given JIN pre-announced headline earnings in July.
- We have made no material changes to our earnings estimates. Our NPAT estimates are effectively unchanged in both FY23 and FY24, although we raise our EPS forecasts by 1% in each year as a result of the proposed $25m buyback.
- We reiterate our ADD rating. We expect JIN to continue to achieve steady growth in the years ahead through a combination of organic contract wins, M&A and diversification.
Double-digit growth in earnings in FY22. In our opinion, JIN’s FY22 results were a showcase for its strong earnings growth and cash generation potential.
The results themselves were largely in line with the pre-release in July, although the treatment of $1.4m of operating costs as one-offs meant underlying EBITDA was 2% above forecast and up 13% y/y at $55.1m. TTV was up 36% and underlying revenue was up 28%.
The divisional split of earnings (which was not pre-released) was largely in line with our estimates, although a small shortfall to our forecasts in Managed Services was offset by higher earnings in Lottery Retailing and SaaS.
Jackpots not playing ball so far this year. Although it is completely out of JIN’s control, the number of large jackpots so far in FY23 is disappointing, with only three topping $15m so far.
The Powerball game will be $20m next week, but it looks unlikely that 1H23 will see a number of large jackpots close to the 23 enjoyed in 1H22. As JIN grows and diversifies its business into SaaS and Managed Services, the machinations of chance will have less of an effect on JIN’s earnings.
We expect JIN to use the lever of its marketing expenditure to mitigate the effect of reduced large jackpot activity on profits.
It’s still early days for Managed Services. Although the SaaS business is now a major contributor to group profit, making up $28.9m of EBITDA in FY22, 48% of group EBITDA before group costs.
SaaS TTV was up 60% in FY22 and we expect strong growth (+25%) in FY23 too, when we expect it to be the largest division by earnings in the group.
Forecast and valuation update
We have made no material changes to our estimates. We have adjusted TTV and revenue to reflect a lower large jackpot assumption, the timing of the StarVale acquisition, and the recent divestment. This is offset by lower forecast operating expenses to leave NPAT unchanged.
Our EPS forecasts increase by 1% due to the effect of the $25m buyback.
Our target price is unchanged at (login to view).
We reiterate our ADD rating. We believe JIN offers excellent strategic growth opportunities, both in Australia and overseas, supported by a steadily expanding domestic market for digital lottery retailing.
The business is cash generative and has a low requirement for ongoing capex.
Lower lottery ticket sales than forecast, either due to jackpot variations or a greater than expected impact from reduced consumer confidence.
Failure to win meaningful additional contracts in SaaS and Managed Services and/or failure to penetrate target markets such as the USA.
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