Jumbo Interactive Signs Off On 10 Year Agreement With Lotterywest

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Jumbo Interactive Signs Off On 10 Year Agreement With Lotterywest

  • Following term sheet signing, deal is signed
  • Gatherwell business triggered earn-out
  • Great potential growth seen by different institutions

TMS Global Services Pty Ltd, a wholly-owned subsidiary of Jumbo Interactive Limited (ASX: JIN) on the 13th of November has signed an agreement with Lotterywest. This agreement follows the development of the deal with the Western Australian State government lottery on the 29th of September where a binding Term Sheet was signed. For the next 10 years, JIN will be able to provide Lotterywest with an online platform.

CEO of Jumbo, Mr Mike Veverka reflects on the positivity that the anticipated deal will have, and the significance of the first government client which will provide a steppingstone in Jumbo’s development.

Key terms of the deal include a 9.5 per cent service fee for every customer transaction through the white label platform. This will include JIN servicing the platform operations, technical, development and customer support services.

The term starts with 3 years, which can then be extended by another 3, and can finally be extended after that by another 4 years at the discretion of Lotterywest. Customer ownership will begin once customers opt into the new white-label platform.

Previous to this announcement, JIN released some more positive news on the 9th of November where the UK business Gatherwell which was acquired in November 2019 has exceeded revenue and profit targets, which has triggered an earn-out payment of roughly (converted from pounds) AUD1,832,000. There is a potential second parcel of AUD1,832,000 which will be determined after the 30th of June 2021.  

The news follows Tabcorp Holdings Limited’s announcement of selling over 7 million Jumbo shares for approximately A$98 million. This represented 11.6 per cent interest in JIN and resulted in a sharp decline in the share price on 22 September, following an aftermarket release on 21 September. Since the close on the 22nd, the share price has recovered around 10 per cent.

Lotterywest will now oversee the marketing strategy for players while JIN will manage customer support. JIN will only be able to market to new or existing customers as agreed with Lotterywest, with the option to transition white label players to the Lotterywest website and app 12 months from the date of going live, which is scheduled for late December 2020.

This is in line with Jumbo’s increasing service as a software proposition where they aim to tap into the total addressable market, gearing the business towards online engagement will position it well for future growth. At the moment, only around 10 per cent of lottery tickets are sold online.

Despite the positivity in positioning and growth potential, Morgans expects revenue margins to result in a lower return for JIN, but administration for digital sales to bring in around AUD120 million. Likewise, Morgan Stanley also believes that there is upside in the business in expectations of total transaction value recovering in FY21 after previous declines, with jackpots down by 38 per cent in the first quarter.

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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