The Lottery Corp Ltd (ASX: TLC) share price has climbed 2.39% in lunchtime trading. At the time of writing, the share price is changing hands at $5.795 a piece. Over the year, shares are 19.98% higher.
But in a recent note to investors, Macquarie Group Ltd (ASX: MQG) just downgraded its outlook for The Lottery Corp shares to neutral, from outperform.
At the same time, the broker raised its target price to $5.50, up from $5.40 previously.
That represents a potential 5.09% downside for investors over the next 12 months at the time of writing.
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Why? What has happened?
The Lottery Corp released its FY25 financial results yesterday morning. The company posted a 6.2% year-on-year drop in revenue to $3,374.9 million, and earnings before depreciation, amortization, net finance costs and income tax (EBITDA) before significant items were 9.4% lower.
Net profit after tax (NPAT) dropped 11.2% before significant items and was 11.7% lower including significant items, at $465.5 million.
The company declared a fully franked final dividend of 16.5 cents per share, up 3.1% from FY24.
"The Lottery Corporation started FY26 with good momentum in the business. The team is focused on generating revenue growth, customer conversion, transforming the customer experience, maximising operational efficiency and continuing to progress licence value enhancement initiatives," the company said.
"FY26 will have the full-year benefit of the Saturday lotto price change and, from November, the planned Powerball entry price increase, subject to regulatory approval. The Company expects continued growth in digital share, enhanced personalisation and further productivity gains to support margin expansion and long-term value creation."
Macquarie concerned about the company's FY26 outlook
Although The Lottery Corp is optimistic about the coming financial year, Macquarie is concerned.
"There has been a lot thrown at FY26 to support +14% EPS growth; two lottery game price increases support +7.5%pts or 55% of the growth," the broker said.
"We see growth slowing in FY27+ (excl jackpot activity) and valuation looks full on 30x 12m fwd P/E, vs 26.5-28.5x usual range. Cut to Neutral."
The broker added that The Lottery Corp has been more active than usual with lottery game pricing/innovation, which supports FY26/27, making changes to Saturday Lotto in May 2025 (+13% price, and increasing division one jackpot 20%), and now increasing Powerball pricing +17% in November 2025.
"These two games represent around 65% of lottery volumes, and the pricing supports around a 7.5%pts annual revenue benefit (+5.3%pts in FY26), assuming 75% stickiness. The next game tabled for change is Set for Life in FY27, which is 5% of volumes, so would need material changes to be significant," Macquarie said in the investor note.
"We now forecast A$417m FY26 NPAT, +14% YoY (previously A$420m), with the lotteries business driving the growth."
"Overall, we see operating costs at A$326m, +6%, representing around 8% of revenues, and supporting operating jaws of around +2%pts in the period," Macquarie said.
