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Why the Jumbo Interactive Ltd share price just hit a record high

Shares in online lottery ticket seller Jumbo Interactive Ltd (ASX: JIN) are rising following a revised trading update for the first half of FY2018.

Jumbo released its initial first half trading update in early December, forecasting revenue and earnings to significantly improve upon the previous corresponding period.

Management has this morning revised guidance even higher, expecting revenue to rise 20% and earnings before tax from continuing operations to lift 43% compared to the first half of FY2017.

The company cited higher-than-expected lottery jackpots in December 2017 and improved customer engagement as reasons for the performance upgrade.

Jumbo shares hit an all-time high following the announcement; on their way to breaking through $4.00 and have now risen more than 150% over the past year.

I believe there is still some value in the share price, given the increasing demand for online lottery tickets and Jumbo’s strong balance sheet and ability to generate cash flow.

The major risk with Jumbo is the company’s reliance on its business relationship with Tatts, the national lotteries business which recently merged with Tabcorp Holdings Limited (ASX: TAH).

However, that relationship appeared to strengthen in 2017, when Tatts became a significant shareholder of Jumbo and the two companies agreed to business contracts running through to 2022.

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Motley Fool contributor Ian Crane has not financial interest in any company 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.

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