18 November 2019
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The New Criterion: Jumbo Interactive and OtherLevels

Tim Boreham
14 February 2018

Lottery ticket reseller Jumbo took the right decision to align itself with traditional partner Tatts Group rather than aggressive challenger Lottoland. Meanwhile, digital promotions house OtherLevels believes that a clamp on wagering advertising will be good for business. Here's a rundown on both.

Jumbo Interactive (JIN) $3.43

Sometimes adversaries can do an unintended favour, which in the case of the online lottery ticket seller has meant a closer relationship with traditional partner Tatts Group.

Tatts – now part of Tabcorp – owns a 15% stake in Jumbo after a placement of 6.6m shares at $2.37 in June last year.

Crucially, Tatts also extended its reselling arrangement with Jumbo out to 2022.

The adversary in question is the Gibraltar-based rival Lottoland – dubbed by some as the Uber of the wagering world because of its disruptive tendencies.

In the unlikely event that no-one has noticed, Lottoland has been aggressively marketing its derivative lottery product in the face of newsagent-led calls for tighter regulation or even an outright ban.

The newsagents are peeved that Lottoland is taking away their business, although Lottoland only promotes overseas lotteries.  State governments are even more annoyed at missing out on lottery taxes.

With a claimed local customer base of 650,000 and 6.5m globally, Lottoland last year offered newsagents a 10% cut of the price when punters nominated a particular outlet.

The derivative nature of Lottoland’s offering means punters don’t participate in the actual lottery, but the outcome of a draw. Last weekend it offered a $1 billion “Super Bowl” themed lottery, reduced by 38% as per “terms and conditions”.

In April last year Lottoland paid $7.6m for a 7% stake in Jumbo, clearly in view of winning over Jumbo to distribute its product over Tatts. But in late June Lottoland conceded defeat and sold its stake at a slight loss.

Despite being distracted by its own merger with Tabcorp, the Lottoland threat girded Tatts into deepening its relationship with Jumbo, which has been selling Tatts tickets on its OzLotteries site since 2000.

Jumbo chief Mike Veverka admits he’s not a fan of Lottoland.

“We weren’t keen on doing anything with them at all,’’ he says. “But they did help push things along (with Tatts).”

The new Tatts-Jumbo tie-up helps allay long-standing investor fears that Tatts would opt to go it alone. (apart from Tatts itself, no-one else can sell Tatts tickets online other than Jumbo).

Veverka argues that as Tatts still gets the ticket and Jumbo has proved an efficient intermediary, it makes no sense to cut  Jumbo adrift.

The Keno business aside, Tabcorp did not have a lottery business but appears willing to learn, having already sounded out Jumbo for advice.

“They are good managers. It won’t take them long for them to get their head around lotteries,” Veverka says. “The last thing they would want is to see the lottery business shrinking.”

In the meantime, Jumbo’s has jumbo-sized its performance, thanks to a string of jackpots (defined as anything over $15m).

In an update on Jan 8, Jumbo pointed to half (December) year earnings of $5m, 43% higher than previously and outstripping December’s guidance of $4.3-4.5m.

Jackpots increased by 20% to 18.

Total transaction value – the face value of the tickets sold – should rise about 20% to $89m.

Jackpots are far more popular with punters, who overlook the reality that the monster payout is more likely to be split among multiple winners.

But that’s not the case with the unclaimed ticket for a $50m Powerball prize purchased at your columnist’s local newsagent – and he remains ready and able to relieve Tatts of the loot if that makes things any easier.

Jumbo shares have spurted 150% over the last 12 months, for a market valuation of $200m.

Also debt free and sitting on a bash balance of $45m. Given the company’s strong franking balance, that raises the prospects of a special dividend.

Jumbo’s fortunes were reflected in the last Thursday’s half-year results for Tabcorp, which reported a 6.2% increase in lotteries revenue for the Tatt’s division, to $1081.2bn. The Tatt’s numbers were certainly better than Tabcorp’s core wagering results.

Digital lottery sales now account for 14.9% of Tatts lottery total sales, up from 14.3% previously.

OtherLevels (OLV) 4c

OtherLevels CEO and founder Brendan O’Kane believes a looming crackdown on gambling promotion will help his heavily wagering exposed digital promotions business, which sounds counterintuitive.

But he reasons if the corporate bookies can’t saturate sports coverage from tennis to tiddlywinks with their special introductory odds, they will need to do more to nurture their existing customer base.

The federal government last year said it would ban betting ads from live sport before 8.30 pm - a measure not yet enacted.

But agitants such as the Nick Xenophon camp are pushing for much more, amid perceptions the industry has way over reached with its blanket-bombing approach to advertising.

The UK-domiciled William Hill has already sniffed the breeze and is odds on to exit the Aussie market, citing regulatory pressures and increased state taxes.

“In Australia there has been a strong focus on brand building and acquisition which has raised questions in the public eye about whether this is what we want to see on TV at 7 pm,” O’Kane says.

The bottom line is that if you’re a punter already on the books, don’t be surprised to be texted live odds pertaining to an event the clever algorithms know you’re interested in.

The in-play aspect is crucial: according to Bet365, 72% of sports betting is carried out after the opening siren (or whistle), with 80 per cent of tennis bets places after the match has started.

OtherLevels gambling-heavy client book includes Ladbrokes, Bwin, the National Lottery, Matchbook, Topbetta and Golden Nugget. “Tattscorp” is also a client.

The company also does work for Flight Centre – another mover in digital reach – and various outposts of Coles.

However, OtherLevels’ key relationships are with the bookies’ British parents – and for good reason. “The UK has been more cautious compared to Australia,” he says. It’s a bigger market with mote maturity and visibility of risks.”

OtherLevels client contracts are typically for 12 months, with an upfront licensing fee and a per-text or per-email fee.

OtherLevels listed in March 2015 after raising $7.5m at 20c apiece. But the company struck early trouble by burning too much cash and making an ill-fated foray into the US.

“We dug ourselves a very deep hole and spent the last 18 months digging ourselves out of that hole,” O'Kane said.

OtherLevels preponderance of wagering clients is not surprising, given the sector was one of the first to embrace digital marketing. But OtherLevels December (second) quarter update showed $2.066m of cash inflows, well up on $1.353m achieved for the September quarter and $1.132m for the previous December quarter.

More importantly, the company turned a $676,000 deficit into a $41,000 surplus for the first time.

OtherLevels market cap of $8.5m implies little upside, which could be construed as an opportunity.

There’s a clump of investors who can be relied on to hang around: O’Kane and the board account for 35% of the register, with Queensland Chief Entrepreneur (yes there is such a thing) and Shark Tank judge Steve Baxter holding a further 20%.

Tim Boreham edits The New Criterion


Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.


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