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Jumbo Interactive Ltd just reported higher-than-expected revenue and earnings

Online lottery ticket seller Jumbo Interactive Ltd (ASX: JIN) released its half-year results this morning, with revenue and earnings even higher than what the company had forecast in its upwardly revised figures just last month.

Key figures from today’s results include:

  • Revenue up 21% on the previous corresponding period (pcp) to $19.3 million
  • Net profit after tax from continuing operations up 53% on pcp to $5.3 million
  • Interim dividend up 114% on pcp to 7.5 cents
  • Total transaction value up 28% on pcp to $89.1 million

The company stated improved customer engagement and a greater number of lottery jackpots for the period were key drivers of higher revenue and earnings. I expect demand growth for online lottery tickets to continue due to increasing awareness of the product and demographic changes.

Total expenses also increased 8.2% during the period as Jumbo continues to invest in “three main pillars” to support ongoing growth; the company’s proprietary software platform, marketing, and employees.

Although expenses were higher, Jumbo is a pure-online player and is not a capital-intensive business which requires large reinvestment.

While revenue rose 21% on the same time last year, cost of sales actually fell 9.7% for the period, highlighting the impressive scalability of the business.

Cash is an issue, though only because Jumbo has so much of it. For a company with a market capitalisation of around $200 million, it has $34.4 million in cash of its own.

Jumbo more than doubled operating cash flow to $11.3 million for the period, and even though the interim dividend was increased 114%, company directors have stated they will “continue to review capital management options in respect of the general cash surplus.”

That could mean another special dividend coming in 2018, following the whopping 15 cents special the company paid in August last year. As it stands, Jumbo has a cash position of almost twice its total liabilities and has no interest-bearing debt. With the company performing so well and in such a strong financial position, it makes sense for surplus funds to be returned to shareholders.

The major risk to Jumbo is the re-sale arrangement with national lottery business the Lott, now owned by wagering giant Tabcorp Holdings Limited (ASX: TAH) following the recent takeover of Tatts Group.

Tabcorp would appear to have its hands full concentrating on integrating Tatts, and I haven’t read anything significant regarding the relationship with Jumbo since Tatts bought a significant stake in the online reseller in 2017. Then, Jumbo also announced it had entered longer-term contracts with Tatts until 2022.

I’ll be monitoring for any changes, but for now it’s a case of no news is good news.

Foolish takeaway

This looks to be a great performance from Jumbo, with results stronger than expected from the company’s upwardly revised forecast in January. Even with the share price much higher today, I believe Jumbo is reasonably priced given the company’s financial position and growth potential.

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Motley Fool contributor Ian Crane owns shares of Jumbo Interactive Limited. 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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