There's a particular S&P/ASX 200 Index (ASX: XJO) stock that could be an underrated business for this ASX reporting season and the longer term. I'm going to talk about the business Lottery Corporation Ltd (ASX: TLC).
For readers who don't know about this business, it is the biggest provider of lottery, Keno, and instant scratch products. You may have heard of some of its games including Powerball, Oz Lotto, TattsLotto and Set for Life.
Image source: Getty Images
Why this stock may be succeeding
Lottery Corporation may benefit from an unfortunate trend of what happens when people go through difficult economic times. A University of Sydney article said:
In times of economic recession, gambling, particularly on lotteries, usually stays strong. Gambling during recession times is typically highest amongst those who are experiencing the greatest financial hardship as it represents a potential way out.
Even if someone doesn't win the jackpot, the feeling of hope can be an appealing feeling to people under a lot of financial stress.
Of course, Australia is not officially in recession. There are plenty of people that are still doing well, but some are struggling – the RBA recently said there "has been an increase in the number of borrowers who are under severe financial stress".
Dr Ana Gamarra Rondinel from the University of Melbourne recently wrote in an article:
Thanks to inflation and incremental interest rate rises, more than half of us (around 56 per cent) are reportedly only just making ends meet – or actually failing to do so.
This may be an economic environment where the ASX 200 stock attracts additional volume.
Digital adoption to drive margins?
A growing number of Aussies are buying their lottery tickets online, which could be helpful for the ASX 200 stock. For that digital volume, Lottery Corporation gets to earn a higher profit margin.
Statista, a research organisation, said:
Customers in Australia have shown a growing preference for online lottery platforms over traditional brick-and-mortar outlets. This shift can be attributed to several factors. Firstly, online lottery platforms offer greater convenience and accessibility, allowing customers to participate in lottery games from the comfort of their own homes. This is especially appealing to busy individuals who may not have the time or inclination to visit physical lottery retailers. Additionally, online platforms often provide a wider variety of lottery games, giving customers more options to choose from.
With the widespread adoption of smartphones and tablets, customers are now able to access online lottery platforms anytime and anywhere. This has led to a significant increase in mobile lottery app usage, as customers can now conveniently purchase tickets and check results on their mobile devices. This trend is expected to continue as mobile technology continues to advance and become more integrated into people's daily lives. Another trend in the market is the introduction of innovative features and promotions by online lottery platforms.
Going digital seems to be good for both the ASX 200 stock and customers.
A combination of growing volume and increasing margins could be good news for the company and its bottom line. Growth of net profit after tax (NPAT) could be helpful for the Lottery Corporation share price.
Lottery Corporation share price snapshot
In the past year, the ASX 200 stock has risen 4.1%, compared to a rise of 2.4% for the ASX 200.
