Is Jumbo Interactive (ASX:JIN) a hidden COVID-19 winner?

Amid the turbulence of 2020, some shares have enjoyed tailwinds. Is Jumbo Interactive Ltd (ASX: JIN) a hidden COVID-19 winner?

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Despite the turbulence of the share market in 2020, there are some shares and sectors that have enjoyed tailwinds — ecommerce in particular.

Oracle Investment Management portfolio manager Luke Winchester runs the fund’s emerging companies portfolio. In an interview with Stockhead, he commented that “the fund has been happy to side on the sidelines of the ecommerce theme.”

However, in the context of ecommerce, Winchester thinks there are still businesses who are benefitting from the pandemic, even if their share prices don’t reflect that. Jumbo Interactive Ltd (ASX: JIN) is one of the names his fund considers a hidden COVID-19 winner.

Winchester points to the fact the online lottery ticket reseller enjoyed a tailwind amid COVID-19, with the pandemic acting as a customer acquisition tool given brick-and-mortar stores were shuttered.

“They have now kept a big chunk of customers who were forced to use their services,” Winchester commented.

How did Jumbo perform in FY20?

Jumbo recorded total sales of $349 million in FY20. The company also booked a 9.1% increase in revenue to $71 million for FY20. Earnings before interest, taxes, depreciation and amortisation (EBITDA) grew 7.7% to $43.2 million.

The company attributes this growth to the launch of and its “Powered by Jumbo” software as a service (SaaS) business.

Online platforms open up UK market

Oz Lotteries is an accredited retailer of Australian lottery tickets while the “Powered by Jumbo” SaaS business is an online platform that provides lottery and gambling services to consumers.

Upon the launch of the new platforms, Jumbo successfully secured a licence from the United Kingdom (UK) Gambling Commission to operate in the UK charities market in November.

According to the UK Gambling Commission, there are 168,168 registered charities in England and Wales, with a target addressable market in the UK worth £775.62 million (as of September 2020).

Partnership with Lotterywest

Jumbo also announced a lucrative agreement with the WA Government-owned and operated Lotterywest in November. Under the terms of the deal, the digital lottery retailer will provide its online software platform for up to 10 years.

Commenting on the agreement, Jumbo Interactive CEO Mike Veverka said: “This is a major achievement for Jumbo Interactive securing our first government client setting up a solid long-term partnership and providing strategic opportunities for Jumbo.”

Based on the terms of the partnership, Jumbo Interactive will receive a 9.5% service fee for every transaction through a white label platform.

Lotterywest will oversee the marketing strategy, while Jumbo Interactor will manage the platform, taking care of customer on-boarding, customer service and after-sale support.

Jumbo share price summary

At the time of writing, the Jumbo share price is up 1.24% for the day at $13.92 per share. However, despite the pandemic tailwinds, Jumbo shares remain 7% down year to date.

On current prices, Jumbo has a market cap of $858 million.

Miles Wu has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited. 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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