Jumbo (ASX:JIN) share price down 10% as first half margins get crunched

Jumbo shares are falling on Tuesday…

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Key points

  • Jumbo had a solid half and delivered strong top line growth
  • However, its profits didn't grow as quickly due to margin pressures
  • But this couldn't stop Jumbo from increasing its dividend by 22%

The Jumbo Interactive Ltd (ASX: JIN) share price is under pressure on Tuesday morning. This follows the release of the lottery ticket seller's half year results.

At the time of writing, the Jumbo share price is down 10% to $16.36.

Jumbo share price falls

  • Total transaction value (TTV) up 41% to $327.9 million
  • Revenue up 29% to $52.8 million
  • Underlying EBITDA up 18% to $28.3 million
  • Underlying net profit after tax (NPAT) up 18% to $16.5 million
  • Fully franked interim dividend up 22% to 22 cents per share

What happened during the first half?

For the six months ended 31 December, Jumbo reported a 41% increase in TTV to $327.9 million and a 29% lift in revenue to $52.8 million.

A key driver of this top line growth was an increase in jackpots greater than or equal to $15 million during the first half. There were 23 of these jackpots during the period, compared to 15 in the prior corresponding period.

This was supported by its Powered by Jumbo software business, which doubled its TTV on a reported basis, and its Managed Services operations, which are led by its Gatherwell business, which reported 56% TTV growth during the half.

One slight disappointment was that this strong top line growth didn't fully flow through to the bottom line. Jumbo's underlying EBITDA margin reduced by 5.3 percentage points to 53.7%. This reflects an increase in Tabcorp Holdings Limited (ASX: TAH) service fees, higher marketing expenses, and a rise in employee expenses to support its growth.

This led to underlying EBITDA growth of 18.2% to $28.3 million and underlying NPAT growth of 18.2% to $16.5 million. Judging by the Jumbo share price reaction, this appears to have fallen short of expectations.

Management commentary

Jumbo's CEO and Founder, Mike Veverka, was pleased with the half.

He said "We are very pleased with the growth that we have achieved this half, across all our operating segments, and the positive momentum across the business. Lottery Retailing continues to perform exceptionally well, underpinned by the improved jackpot cycle and our focus on player engagement and retention. Our SaaS and Managed Services segments continue to demonstrate good organic growth, with all our Australian SaaS clients contributing on a full run-rate basis."

"We are successfully executing on our strategy and planning is underway to ensure we efficiently and effectively integrate the Stride and StarVale acquisitions post completion. The global lottery industry is in the midst of a digital change and our Powered By Jumbo software platform will be key to supporting lotteries through this change. Our balance sheet remains strong and when combined with our new debt facility, provides additional headroom for further strategic growth."

No guidance or commentary has been given for the second half, which could be weighing a touch on the Jumbo share price this morning.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Jumbo Interactive Limited. The Motley Fool Australia 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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