Diversification Drives Jumbo Growth Outlook

This story features JUMBO INTERACTIVE LIMITED, and other companies.
For more info SHARE ANALYSIS: JIN
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The share market has signaled approval of Jumbo Interactive’s UK acquisition as management diversifies away from lottery retailing.

-Jumbo Interactive acquires Dream Car Giveaways? in the UK
-FY26 guidance unchanged, forecasts raised
-Lower future volatility anticipated around jackpots
-Synergies via Oz Lotteries platform & UK B2C

By Mark Woodruff

Shares in digital lotteries marketing business Jumbo Interactive ((JIN)) have rallied sharply, reflecting market confidence in management’s strategy to accelerate growth while broadening revenue and earnings streams.

The company is set to acquire Dream Car Giveaways, a leading business-to-consumer (B2C) brand and digital marketing proposition in the UK Prize Draw market.

Management anticipates double-digit EPS accretion a year after completing the purchase of what is already a high growth, profitable and cash generative business. The target’s founders and team will remain in place.

While Jumbo’s FY26 guidance remains unchanged, the acquisition is expected to contribute between $14.3-14.9m in underlying earnings in FY26, representing 20-25% growth.

The company sees significant opportunity to further leverage Dream Car Giveaways through its proprietary platform, which underpins Oz Lotteries and supports its software-as-a-service (SaaS) clients.

Additional growth is expected as Jumbo applies its established data-driven capabilities and best-practice marketing approach, honed across regulated lottery markets.

Jarden believes the acquisition should help reduce earnings volatility around jackpot sequences and lower the relative magnitude of earnings risk ahead of the renewal of Jumbo Interactive’s reseller agreement, which expires in 2030.

Jumbo operates as a reseller of lottery products in Australia via OzLotteries, selling official lottery games such as Powerball, Oz Lotto, and others on behalf of The Lottery Corp ((TLC)).

Jumbo’s operating margins in Lottery Retailing are partly affected by paying a service fee to Lottery Corp, especially as jackpot-driven revenue varies.

Bell Potter now expects around 45% of 2027 revenue for Jumbo will be generated from non–The Lottery Corp products.

Beyond the reseller role, Jumbo is developing software-as-a-service (SaaS) and platform licensing operations.

The Jumbo Oz Lotteries platform is well positioned to deliver synergies when integrated with the UK B2C market, in Bell Potter’s view, which the company estimates to be worth approximately GBP1.3bn annually.

The new business

Not confined to car prizes, Dream Car Giveaways also conducts giveaways of cash, property, and lifestyle products.

Jumbo Managing Director, CEO, and founder Mike Veverka noted “the UK Prize Draw sector is meeting the rising demand from younger, internet-savvy consumers seeking unique products in an engaging digital format”.

The acquisition cost is -$109.9m, comprising a -$75.2m cash upfront payment, a -$10.2m equity component, and an earn-out payment of up to -$24.5m, subject to achieving certain revenue growth and earnings hurdles.

Funding of the transaction will occur via -$17.9m in existing cash, the -$10.2m equity component, and the draw down of -$81.6m in debt under an upsized and amended debt facility with ANZ Bank ((ANZ)).

Diversification

The acquisition of Dream Car Giveaways helps bridge the potential earnings gap from non-Lottery Corp revenue streams, notes Morgans, while also accelerating Jumbo’s strategic shift toward higher-margin B2C opportunities and away from its slower-growing international B2B operations.

The international B2B operations are part of Jumbo’s diversification towards a more scalable, platform-oriented business model from being solely a reseller of lottery tickets, primarily in Australia.

These B2B arrangements offer recurring revenue streams, greater contractual stability, and a lower dependence on jackpot volatility in retail lottery operations.

Here, Jumbo has expanded beyond Australia into the UK via its subsidiaries Gatherwell and StarVale, which act as external lottery managers and service small-to-medium charities and non-profit lotteries in the UK.

In Canada, Jumbo is active in charity lottery and raffle operations through its arm Stride.

Also, the company markets its Jumbo Lottery Platform globally for charities and non-profits wishing to modernise their lottery operations digitally. The platform is licensed across multiple jurisdictions.

Regulatory concerns

Highlighting the Dream Car Giveaways business is still in its early days, Citi also cautions the acquisition carries risks due to the fragmented nature of the market, low barriers to entry, and the potential for increased regulatory oversight.

On this latter point, Morgan Stanley notes the UK government undertook a review of the Prize Draw market, and in June announced the introduction of a Voluntary Code of Practice.

This broker sees scope for further increases in regulation at some point (and a rebasing of earnings lower), which could restrict player access through age or problem-gambling limits.

It is thought restrictions may entail a cap on advertising and spending or payment options, and a mandate for minimum charitable contributions, as well as game taxation or a tightening of licensing requirements.

Execution and regulatory risks remain, but Morgan Stanley still concludes Jumbo is a financially and strategically compelling investment.

More on the Jumbo business

Throughout FY24-25, Jumbo invested in product innovation and operational improvements. Management launched new proprietary games such as Daily Winners and optimised its digital platforms to increase customer engagement.

The company’s focus on player experience and data-driven marketing has improved retention and reactivation of users, supporting revenue despite jackpot variability.

Locally, Jumbo has been actively expanding beyond its traditional consumer lottery resale business into B2B lottery software and services.

In September, the company signed a major SaaS agreement with RSL Queensland to power RSL’s flagship “Dream Home Art Union” lottery program.

The Dream Home Art Union is Australia’s largest prize home lottery with around $200m in annual ticket sales.

Dividend and outlook 

A further update on Jumbo’s FY26 dividend will be provided at the AGM on November 11.

Following the acquisition, Morgans expects the company’s dividend payout ratio (currently 65-85% of profit) to be reduced to prioritise debt repayment and maintain balance sheet flexibility.

While the acquisition appears promising, Citi prefers to see tangible results before adopting a more positive stance. This broker also remains cautious about ongoing negative like-for-like trends in Powerball, which are expected to weigh on Jumbo’s turnover in FY26.

The analysts at Morgan Stanley believe Jumbo’s negotiating position for the upcoming Lottery Corp reseller renewal will be enhanced by the latest acquisition via a larger, faster-growing offshore earnings base.

Putting the acquisition to one side, this broker highlights other positives including game updates across key titles, easier FY25 jackpot comparatives, Jumbo’s price increases in major games, strong Daily Winners growth, potential SaaS catalysts, and an undemanding valuation.

Morgans sees Jumbo Interactive as a quality defensive growth stock with a balance sheet to match.

This broker, after incorporating the Dream Car Giveaways acquisition, adding the newly announced RSL Art Union SaaS contract, and moderating Lottery Retailing growth assumptions, upgrades its rating to a Buy from Accumulate.

There is one other daily covered broker by FNArena with a Buy rating while three others are on Hold (or equivalent).

The average target of the five brokers has rises to $13.56 from $13.00 following the acquisition announcement, implying around 4% upside to the $13.02 share price today.

Outside of daily coverage, Jarden has a Buy rating and $14.10 target price.

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