Why Jumbo Interactive Limited has rocketed 23% today

Shareholders of interactive lottery business Jumbo Interactive Limited (ASX:JIN) have seen the value of their holding rocket by 23% today following the release of the company's full year guidance. Is this a growth share you should invest in?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shareholders of leading interactive lottery business Jumbo Interactive Limited (ASX: JIN) will be smiling today after its share price rocketed higher by 23% to a new 52-week high following the company's announcement of its FY 2016 earnings guidance.

The company advised the market that it expects a significant increase in profit thanks to growing customer numbers combined with a run of jackpots. Furthermore, the company's focus on cost management and an improvement in its German unit have also contributed to the strong performance.

The company now expects the following for FY 2016:

  • Total Transaction Value – $155 million (Up 19.2% from $130 million in FY 2015)
  • Revenue – $34 million (An increase of 16% from $29.2 million last year)
  • Net profit after tax – $4.4 million (a massive 528% increase year on year from $0.7 million)

As well as allowing customers to play lotteries through its mobile app, Jumbo Interactive also operates the Jumbo Lotto website in Germany and the popular Oz Lotteries website in Australia under an agreement with Tatts Group Limited (ASX: TTS).

Mobile appears to be where a lot of the growth is coming from. The company revealed that 67% of online activity derives from mobile. The success it is having with its mobile offering is great to see, especially when you consider how vital it may be for attracting the younger demographics.

The shares are currently changing hands at approximately 15x full year earnings guidance. For the growth the company is producing I believe this is great value, but it is not without its risks.

Whilst the company does have a very strong relationship with Tatts Group, its agreements in Victoria and New South Wales expired in 2013 and have only been extended on a 30 days' notice basis. Agreements with Tatts in South Australia and the Northern Territory expire in September 2017. As the vast majority of its revenue comes from the Australian market the ramifications of Tatts Group ending its agreements with the company would be destructive financially.

Because of this I believe that as tempting as an investment as it may be, it is too high risk for my liking. The company is pursuing the renewal of its agreements for a further five years, but until it manages to achieve this I would personally hold off an investment. I think anyone looking for exposure to the gaming industry might be better off looking into an investment in Crown Resorts Ltd (ASX: CWN).

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »