We see 2H23 revenue weakness as a result of bad luck as opposed to a sign of worsening demand or poor execution e.g. in 2H23E to date, Powerball jackpots have been won 42% of the time versus a historical average of 27%, with a high win rate limits the opportunity for TLC to accumulate larger jackpots and attract jackpot-elastic customers. However, mathematics will prevail over time and we see more $50-$100mn jackpots advertised moving forward which is good news for TLC. We have felt the stock has looked expensive for a while, it’s currently trading on 32.4x Est 2023 earnings again making cash a viable alternative.
TLC is a $9bn Lotteries & Keno business that was spun out of Tabcorp earlier in the year, delivering its first set of FY22 results last month which included revenue up over 11% to $3.27bn and a NPAT of $373mn. The stocks not overly cheap trading on 27.8x Est 2023 earnings and it’s hard to see a significant catalyst that will propel the stock higher into 2023 - although gambling businesses love a recession!
The Lottery Corporation Limited is an Australia-based lottery company. The Company is engaged in providing lottery business in the world. The Company operates two brands: The Lott, and Keno. The Lott includes various brands, such as Set for Life, Powerball, Oz Lotto, TattsLotto, Gold Lotto, X Lotto, Instant Scratch-Its, and Lucky Lotteries. The Lott operates in all states and territories of Australia except Western Australia. The Keno is a lottery-style game that gives customers a chance to win the jackpots. It is played in clubs and pubs in Victoria, Queensland, South Australia, New South Wales, and the Australian Capital Territory (ACT), with digital approvals in the Australian Capital Territory and Victoria. The Company has approximately 3800 lottery outlets and 3400 Keno venues in Australia. The Company manages its brands through online and retail networks.
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