Lottery Corporation Ltd (ASX: TLC) shares have outperformed the market for the year to date.
At the time of writing, Lottery Corporation is up 5%, slightly ahead of the S&P/ASX 200 Index (ASX: XJO), which has risen around 4%.
Lottery Corporation is Australia's leading lottery and Keno operator. It holds a portfolio of well-known brands and games under exclusive and/or license approvals. The mix of the business skews heavily to lotteries, which account for more than 85% of earnings.
It is a highly cash-generative business, underpinned by long-run licenses within Australia. It holds 13 licenses and approvals, some extending as far as 2072. The average lotto license does not expire for 18 years, and the average Keno license for 28 years.
Lottery Corporation has a large addressable market. According to Roy Morgan Gambling Monitor (2024), as reported in the Lottery Corporation's 2024 Annual Report, 53% of the Australian adult population purchased a lottery in the past 12 months.
The business is also relatively defensive. Demand for lottery tickets has proven to be sticky, despite short-term variances in jackpot variability. Its broad range of products and price points allows consumers to alter the frequency of their spending and amount per ticket.
The company also offers a fully franked dividend yield of 3.1%, which may appeal to investors seeking passive income.
So, for many investors, Lottery Corporation shares tick a lot of boxes.
Are they a buy today?
Let's see what Macquarie Group Ltd (ASX: MQG) had to say.
In a 19 June research note, Macquarie placed an outperform rating on Lottery Corporation.
The broker also assigned a price target of $5.40. At the time of writing, shares are changing hands for $5.23, suggesting 7% upside from here over the next 12 months (including both dividends and capital gains).
The broker said:
Australian lottery jackpot activity picked up in June with Oz Lotto peaking at A$70m and Powerball hitting A$100m, and has mostly mitigated the risk of consensus downgrades. Based on our tracker and scenarios, we see FY25 volumes dropping 9% (vs 7.5% drop previously) and this is reflected in our forecasts. Overall, we see jackpot games dropping 16%, whilst base games should show growth (+3%).
Importantly for digital volumes, key games should see sequential growth (+9%), and as such, we expect improved digital penetration sequentially (2H25 = +1%pts to 41.5%).
Macquarie reinforced the ASX 200 stock's defensive qualities, noting:
Australian lotteries have shown resilience over a long period of time with low sensitivity to economic growth, illustrated by the +4% volumes CAGR over the past 25 years, but noting some period-to-period volatility related to jackpot activity.
Looking forward, Macquarie is forecasting 11.5% revenue growth (+17% digital volumes) in FY26, driven by jackpot normalisation, Saturday Lotto pricing, and underlying growth.
Foolish Takeaway
Lottery Corporation may not be the fastest-growing ASX 200 company out there. However, it has proven resilient through various economic conditions while offering an attractive dividend yield. Macquarie expects the stock to outperform over the next 12 months.
Given the volatile start to 2025, ASX investors looking for stability may wish to consider adding Lottery Corporation shares to their portfolio.
