Jumbo Interactive Resumes Trading, Extends Partnership with Tabcorp | KOSEC

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Jumbo Interactive Resumes Trading, Extends Partnership with Tabcorp


Two weeks after it entered a trading halt on 15 June 2020, Jumbo Interactive has now resumed trading. Specifically, Jumbo extended its 15-year relationship with Tabcorp Holdings Limited after signing a binding sheet on 28 June 2020. The new agreement will now expire in July 2030. More notably, the relationship between Jumbo and Tabcorp dates to that of 2005. Jumbo operates the renowned www.ozlotteries.com, Powerball and TattsLotto under agreements with Tabcorp. Subsequently, Tabcorp became Jumbo Interactive’s major shareholder in 2017.

More broadly speaking, Jumbo’s sustained growth within the online lotteries business is in part attributed to Tabcorp’s existing portfolio of lottery games. Thus, the renewed agreement will enable Jumbo to jump on international lottery opportunities all while capitalising on its lottery SaaS (Software as a Service) platform.

Despite the benefits,  there exist several binding terms that form the key aspects of the agreement. Foremost, Jumbo will need to fork out an upfront extension fee of $15 million payable to Tabcorp. On top of that, an additional expense relates to the service fee that comprises 4.65 per cent of ticket subscription price. Yet should agreements fail to form within 60 days from 28 June 2020, the duration of the deal risks the possibility of a revised expiry date.

Nevertheless, the revised agreements will cover New South Wales, Victoria, Northern Territory, South Australia, ACT and Tasmania. Meanwhile, Jumbo remains to be in discussions with Lotterywest surrounding arrangements for its Western Australian customers. The group constitutes close to 10.5 per cent or $33 million of ticket sales in FY19. Nevertheless, should discussions fail to translate into an agreement, Jumbo will look towards other feasible options to maximise the value of its current customer base.

CEO and Founder of Jumbo, Mike Veverka believes that within the next decade, the local and global lottery industry will undergo massive changes. Therefore, the newly implemented 10-year agreement, which is the longest ever term in the firm’s history, will provide a platform for continued expansion. However, investors did not regard the announcement to be favourable.

This is because Jumbo’s shares concluded its first day back at trading 13 per cent lower to $9.90. Top concerns surrounding the decision to extend its partnership relate Jumbo’s ability to maintain a healthy balance sheet. More recently, in the middle of June, the S&P Dow Jones Indices has made changes in the Quarterly Rebalance. Specifically, effective 22 June 2020, Jumbo will no longer be part of the S&P ASX 200 Index.

Nevertheless, Jumbo Interactive sticks to its guidance previously announced on 1 April 2020, confirming its expectations for 39 large jackpots. Despite the considerable decline in large jackpots for FY20, the firm stands to benefit from the pandemic. This is because as consumers turn to online avenues during the COVID-19 pandemic, sales on a like-for-like basis surpassed expectations.

By Caroline Wong 

Click here for a 7 days access to our Lotus Blue Portal.

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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