Australia | Nov 10 2022
This story features LOTTERY CORPORATION LIMITED. For more info SHARE ANALYSIS: TLC
The Lottery Corp reports a volatile year-to-date, with strong results underpinned by jackpot activity, and announces a ticket price increase for Powerball.
-A change to Powerball game pricing should prove beneficial to The Lottery Corp’s revenue
-Recent jackpot activity has been key to strong results year-to-date
-Analysts raise concerns over growth excluding jackpot benefits, but largely see long-term value in the stock
By Danielle Austin
The Lottery Corp ((TLC)) has detailed a number of initiatives that look to increase earnings, notably including the first Powerball re-pricing in five years. The company announced it will issue a 9% increase to Powerball subscription pricing from the fourth quarter, lifting the per-ticket price 10 cents. The higher price is expected to boost FY24 revenue by 2%
Group revenue has increased 11% in the four months to the end of October, with Lotteries up 9% and Keno up 33%. This is well ahead of consensus growth expectations of just 1% year-on-year for the full fiscal year.
The recent $160m Powerball jackpot drove a 22% increase in lottery revenue growth in October, and proved a key driver in the sales result year-to-date, but analysts have raised concerns as to the sustainability of sales without further jackpot activity. Based game turnover, excluding jackpot activity, was up a more modest 4% year-on-year.
Jackpot activity key to first half results
The five FNArena database brokers covering Lottery Corp were largely in agreement that recent jackpot activity resurrected results for the first four months of the fiscal year. Despite this, four are equivalent Buy-rated and one Hold-rated, with a target price between them of $4.87, ranging from $4.10 to $5.40.
Following the recent jackpot, Macquarie (Outperform, target price $4.90) anticipates Lotteries revenue growth of just 3% over the full fiscal year, noting the company faces challenging comparable metrics in its fourth quarter. The broker also anticipates changes to Monday and Wednesday lottery draws will come into effect for FY24, and could add 1% on an annualised basis. Macquarie assumes 4% year-on-year earnings growth in FY23, and a 5% three-year compound earnings growth rate through to FY25. Macquarie feels investors would do well to look through recent volatility to consider the sustainable earnings growth potential of the stock.
With the update to Powerball pricing being implemented toward the end of FY23, Credit Suisse (Neutral, target price $4.10) assumes a two month contribution in the current fiscal year, estimating a 0.5% revenue benefit. On a full-year basis, Credit Suisse assumes Lottery Corp will benefit from positive revenue elasticities, combining the 9% price increase with 6% sales growth.
Ord Minnett (Accumulate, target price $4.95) expects some reversion in revenue growth following the stronger second quarter, anticipating Lottery Corp will slow the jackpot sequence. Estimating 4% growth in the first half, Ord Minnett feels consensus forecasts should be lifted closer to its own assumptions.
Positively, UBS (Buy, target price $5.40) sees no signs of cyclical headwinds for the company, finding base game performance resilient. The broker feels performance to date supports assumptions that Lottery Corp can sustain above historical average long-term lotteries revenue growth. Morgan Stanley also updated with an Overweight rating and a target price of $5.00.
In addition to database coverage, Jarden (Underweight, target price $4.03) and Goldman Sachs (Sell, target price $3.50) noted the recent jackpot reinvigorated sales and underpin the strong outcome year-to-date. While noting there is possibility that a price rise for Powerball tickets could have a marginally negative impact on demand, Jarden feels the increase will likely be net positive given sales skew to large jackpots.
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