The Lottery Corporation’s economic resilience drives earnings 21 percent higher to $412M.

About The Lottery Corporation Limited

The Lottery Corporation Limited (Lottery Corp, the Group, ASX: TLC) is a top 50 ASX-listed company and Australia’s largest lottery operator. The Group generates commission through the sale of Instant Scratch-Its, Powerball coupons, and Keno games through 3,800 lottery outlets and 3,400 Keno venues. Lottery Corp also has a growing digital retail channel. The Group’s brands include Oz Lotto, Powerball, and Keno. Lottery Corp has been listed on the ASX since 24 May 2022 following its demerger from Tabcorp.

Track record of sustained growth and resilience continues

Lottery Corp’s defensive characteristics in a subdued economic environment partly explain the Group’s robust FY24 Net Profit After Tax result of $412 million, an increase of 21 percent on FY23. This amount translates to earnings per share of 18.5 cents, from which 16 cents in fully franked dividends were declared, plus a 2.5 cents per share fully franked special dividend. Net operating cash flows were $424 million, representing a profit to cash conversion ratio of 103 percent, which justifies the 100 percent dividend payout ratio in FY24.

The strong FY24 result was boosted by February’s record $200 million Powerball jackpot which followed $100 million and $150 million draws in the fortnight prior to the record prizemoney draw. Monster jackpot events draw, reactivate and retain customers, which grew by more than 500,000 compared with FY23, to a record total of 4.75 million participants. The Group estimates that the record Powerball jackpot benefited FY24 turnover by about $500 million.  In a display of a strong shareholder return bias, the highly favourable year for jackpots relative to expected (modelled) outcomes, saw the Board declare the 2.5 cents per share special dividend. The $200 million record jackpot is modelled as one-in-seven-year event. This contrasts with the prior year which recorded below-model jackpot outcomes that reduced jackpot game turnover by an estimated $250 million.

Turnover for base games was down 2 to 4 percent on a like-for-like basis, in a weak consumer spending environment, although some of this softness is attributed to transference to jackpot games.  The digital share of Lotteries turnover increased to 41 percent, up from 38.4 percent, which helped the Group’s FY24 EBITDA/revenue margin improve by 70 basis points to 19.5 percent. Digital channels provide for a low cost, flexible, personalised, and scalable media and communications strategy, especially geared to maximise the benefits of jackpot events.

Lottery Corp shared $1.9 billion in Lotteries and Keno taxes with state and territory governments and $725 million in commissions to retail businesses in FY24.

A resilient world-class lotteries business

Lottery Corp is one of the highest performing lotteries businesses globally that owns a portfolio of high-profile brands, operating under a low-spend, mass participation model underpinned by wide community acceptance. It operates a highly defensive, strong cash flow generation and low capital intensity business model with earnings upside from patronage growth using its digital platform. Lottery spending has grown steadily at 4.1 percent per annum over the past 20 years and grew by 5.8 percent per annum during the 3-year period of the COVID-19 pandemic.

The balance sheet is conservatively leveraged at 2.6 times EBITDA, which is comfortably within its targeted leverage range of 3-4 times EBITDA. Lottery Corp has been assigned an investment grade credit rating of BBB+. The weighted average debt maturity is 5.5 years, at an overall interest rate of 5.8 percent per annum.

Lottery Corp doesn’t provide outlook guidance. However with a 12 percent lift in active Lotto patrons to 4.75 million, and given the resilience of lottery ticket sales in times of economic weakness, shareholders can reasonably expect consistent earnings and dividend growth at least in the medium-term.