Jumbo Interactive Ltd (ASX: JIN) shares have opened 0.59% higher on Wednesday morning. At the time of writing, the ASX All Ords shares are changing hands for $10.22 a piece.
The lotteries operator's shares spiked to an 8-month higher of just over $13 in mid-October, but they've since crashed by 32.3% at the time of writing. Since January the shares have fallen 26.26%.
October's peak followed Jumbo's new $110 million acquisition of Dream Car Giveaways, a leading UK-based digital prize draw business. Only two weeks later, the company announced another acquisition for Dream Giveaway USA for US$55.4 million (A$57.8 million).
Investor reaction was cautious. Some sold the shares amid concerns that the company might be taking on too much too quickly.
And yesterday, Jumbo held its annual general meeting (AGM) for 2025 where it announced its trading and capital management update. Lottery Retailing Total Transaction Value (TTV) was up 5.2% and revenue increased 12.5% for the first quarter of FY26.
In a note to investors this morning, Macquarie Group Ltd (ASX: MQG) revealed its latest stance on the shares.
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Strong upside ahead for the ASX All Ords stock
The broker confirmed its outperform rating on Jumbo shares, and raised its target price to $15.00. This is an increase from $13.90 announced in June.
At the time of writing, the new target price represents a potential 46.8% upside for investors.
"Target price = A$15.00/sh (+8%), which is based on a DCF, and implying 10x EV/EBITDA, 16x P/E on a 12-month forward basis," Macquarie analysts said in the note.
Recent M&A de-risks the earnings to lottery reseller renewal risks which is a key debate. As always with M&A, there will be debates on acquisition quality and execution risk, which is why there is likely little value currently ascribed in the share price in our view.
Jumbo's earnings outlook is also robust
Macquarie noted that, recent Prize Draw M&A reduces exposure to lottery reseller agreements. The broker estimates this will make up around 55% of earnings at renewal, versus 80% currently.
"Whilst the Prize Draw M&A is significantly accretive (MQe = +25% FY27 EPS), they are arguably lower quality businesses versus Jumbo's current operations given: 1) market structure, with low barriers to entry supporting many competitors, and 2) regulatory changes are expected in the UK, which seem constructive, but are not formalised, but should raise barriers to entry / reduce competition," the broker said.
Macquarie has raised its earnings per share (EPS) +9% / +29% / +32% for FY26-28E.
"We now include A$19m Prize Draw EBITDA in FY26 (mid-point guidance), and A$30m FY27 EBITDA, +12% yoy vs. mid-point annualised FY26 guidance. We see Dream Cars Giveaways UK as the better quality business, set-for double-digit earnings growth, whereas Dream Giveaway US will need technology integration / execution to support growth," the broker said.
