Players gonna play: 3 ASX shares set for a strong reporting season

There are some consumer activities that don’t just disappear because of an economic downturn. Here are some stocks that could surprise in next month’s results.

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To combat worries about an economic downturn, it can be productive to try to think of consumer activities that could stay steady through tough times.

One such industry could be gaming and gambling.

Yes, Australians will have less disposable income to spend on such pleasures after multiple monster interest rate hikes. But history shows consumers look for an escape when a struggling economy is getting them down, and some types of gaming don’t suffer.

Helpfully, Morgans senior analyst Alexander Mees this week gave his thoughts on the ASX shares in this industry and how they might fare in their August financials.

There were three in particular that his team rated as a buy.

Recession-proof gaming

The coming reporting season will be the first for Lottery Corporation Ltd (ASX: TLC) after its separation from ASX share Tabcorp Holdings Limited (ASX: TAH).

Mees, on a Morgans blog post, forecasts a “steady performance” with earnings before interest, taxation, depreciation and amortisation (EBITDA) up 13% to hit $691 million.

“The larger lotteries division is forecast to deliver all of the growth in earnings (EBITDA up 18%), with Keno EBITDA down 15% after a strong FY21.”

According to a Netherlands study, lottery businesses seem to be “recession-proof” compared to other forms of gaming. 

“[Lotteries consumption] is characterised by a vast and solid growth that appears to be independent of the business cycle and of temporary shocks to income,” said research authors Csilla Horváth and Richard Paap. 

“During recession the lottery consumption outperforms any other sector in terms of growth.”

Mees’ team has an add rating for Lottery Corporation shares.

“We forecast 5% growth in EBITDA into FY23.”

Another growing lotteries operator

ASX share Jumbo Interactive Ltd (ASX: JIN) is another lotteries provider that Morgans analysts favour at the moment.

Mees is expecting next month’s reporting season to show “another year of good growth” for the company.

“We have increased our EBITDA estimate by 3% to $55 million, up 13% y/y with most of the growth driven by the rapidly expanding SaaS [software-as-a-service] division,” he said.

“We forecast 24% growth in EBITDA into FY23.”

Jumbo Interactive shares have fallen about 17% year to date while paying out a dividend yield of 2.5%.

It seems other professionals agree with Mees. CMC Markets shows five out of seven analysts recommend Jumbo Interactive as a strong buy.

One ASX share for a long-term bet

BlueBet Holdings Ltd (ASX: BBT) is in the field of sports gambling. As such, it’s more vulnerable in the short term to an economic slowdown.

But Mees’ team finds it attractive for it for its “significant” long-term potential.

“BlueBet’s Australian business is forecast to achieve strong growth in turnover in FY22 (48%) as it increases marketing costs to drive customer acquisition,” Mees said.

“Those higher marketing costs are likely to reduce EBITDA in Australia to breakeven, with the investment in the US growth strategy pushing group EBITDA to a forecast loss of $1.2 million.”

While Morgans analysts have lowered the 2022 gross profit forecast by 4%, BlueBet just signed up its fourth US state.

This ASX share is currently going for a considerable discount compared to just a few months ago. The price has plummeted more than 63% year to date.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Jumbo Interactive Limited. The Motley Fool Australia has recommended BlueBet Holdings Ltd and Jumbo Interactive Limited. 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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