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Why I’d consider buying Jumbo Interactive Ltd (ASX:JIN) shares

Jumbo Interactive Ltd (ASX: JIN), the company specialising in selling lottery tickets online, opened the week on a new multi-year high of $4.87, after releasing its forecast for FY18 results.

Jumbo expects net profit after tax of $11 million, 45% up on the previous year, reflecting a 15% increase in revenue to $37 million and a 25% increase in total transaction value to $182 million.

Jumbo will be one to watch when it releases its actual results later this year, since the company has a recent history of beating its own predictions. Half-year results released in February were significantly stronger than forecasted by the company one month prior.

CEO and founder of Jumbo Mike Veverka said, “The strong performance expected in the financial year is driven by continual improvements in marketing that have engaged existing customers as well as acquiring new customers.”

On June 29, the company will pay a fully franked 8 cents per share special dividend to shareholders on the register by June 15. This will be the second special dividend paid in FY18, as part of the company’s ongoing capital management strategy. According to the release, this still leaves enough cash and franking credits for potential acquisitions and a further special dividend in the future.

For ordinary dividends, the company maintains an 85% of NPAT payout ratio.

At the time of writing the stock is up 3.5% to $4.80, up 80% in the last 12 months. Based on the company’s guidance and on the current share price, Jumbo trades at 23x earnings, with a dividend yield of 3.7%.

Foolish takeaway

Jumbo’s success lies in the simple but effective idea of opening up online and mobile distribution channels for traditional lotteries – making the game easier to access and more appealing to younger demographics.

I think this business model is strong enough to secure further growth, and I don’t see competitors capable of disrupting Jumbo’s position in the near future. I wouldn’t be put off by the share price run and I would consider investing in this small cap.

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Motley Fool contributor Tommaso Autorino has no position in any of the 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 Scott Phillips.

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