Lottery Corporation share price drops despite $373 million profit

We check the FY22 results for the spun-off lotteries and Keno operator that listed on the ASX in May.

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Key points

  • The Lottery Corporation share price is lower today amid a mostly positive earnings card for FY22
  • The company noted it's seeing substantial results from its transition to digital for its lottery games and will attempt to replicate its success with Keno
  • It also said its demerger from Tabcorp, originally announced in May, is successfully completed

The Lottery Corporation Ltd (ASX: TLC) share price is edging into the red in midday trading amid the company announcing its full-year results for FY22.

Shares of the lotteries and Keno operator are currently fetching $4.365 each, a 1.69% drop on yesterday's closing price. Earlier today, The Lottery Corporation share price hit an intraday high of $4.53.

Let's go over the highlights of the report.

What did The Lottery Corporation report?

The company notes that it did well in the face of COVID-19, with lottery products picking up the slack from its Keno division during lockdowns and other operational disruptions.

The Lottery Corporation stated that it completed its demerger from Tabcorp Holdings Ltd (ASX: TAH) in FY22. The demerger was first announced in May this year, with Tabcorp spinning off its lotteries and Keno businesses to create the new company.

As my Foolish colleague James Mickleboro reported at the time, the merger was done to maximise shareholder value and upside potential from future growth opportunities and give the businesses unique operating focuses.

Finally, the company said it expects to pay its first dividend in or around March next year.

What else happened in FY22?

The company reported strong results from its lotteries operating segment, with comparable revenues up 10.3% YoY to $3.25 billion and comparable EBITDA up 14.9% YoY to $600 million.

Results were underpinned by effective management of jackpot games and margin inflation through its transition to digital games, with digital turnover growing from 32.8% to 37.7% during the reported period for lotteries.

The Keno operating segment, however, underperformed with comparable revenue down 1.2% YoY to $252 million and comparable EBITDA down 4.1% YoY to $94 million.

Despite these weaknesses, the company states that its results were "largely in line" with FY21 while contending with venue closures caused by COVID-19.

What did management say?

The Lottery Corporation Managing Director & CEO Sue van der Merwe said:

In FY22 we sold over 660 million Lottery entries and delivered initiatives to enhance the customer experience. These included the Oz Lotto game change implemented in May that will deliver bigger prizes and more winners, and enhancements to our responsible play programs. The Lottery Corporation is in the business of making positive impacts. In FY22, The Lottery Corporation's operations generated $1.7bn in lottery and Keno taxes for governments and more than $500m in commissions for newsagents, licensed venues and other retail partners.

What's next?

Broadly, The Lottery Corporation expects to make further investments to maximise upside value from its existing gambling licences in FY23. It will also undertake additional operational measures as part of the demerger.

A specific focus of the business will be in its transition to digital as part of its omni-channel approach to offering lottery products, possibly encouraged by the strong growth it observed in this segment in FY22.

It's also exploring the digital option for its Keno games as it intends to seek approval to incorporate digital into its recently acquired Victorian licence. This is anticipated to give users additional features on its applications and play digitally in its physical venues.

The Lottery Corporation share price snapshot

The Lottery Corporation share price is currently down 6.5% since it listed in May. In the same time period, the S&P/ASX 200 Index (ASX: XJO) is down around 1.66%.

The company's market capitalisation is currently $9.78 billion taking into account today's share price action.

Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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