Five things we learned from Jackpotjoy’s full-year results
London-listed firm expects to gain market share from incoming bonus tax and dismisses the addition of a sportsbook
Following Jackpotjoy plc’s (JPJ) maiden earnings report as a London-listed company, here are five things we learned from the report and subsequent analyst call.
1. Tax on bonuses could boost JPJ market share
JPJ CEO Andy McIver suggested the incoming tax on gaming bonuses, due to be implemented in August, could help the firm improve its market share, even as it impacts margin.
He said Jackpotjoy was well-positioned to deal with the free play levy thanks to its scale – it commands around 22% of the UK bingo market – and its limited reliance on bonusing.
“Jackpotjoy is bonus-light and the advantage of the tax for us is it makes life harder for everyone else, particularly the smaller firms that use bonusing as their chief recruitment tool,” McIver said.
He said the tax would still have a 3-4% hit on margin, adding: “We will have to pay more, but it’s not going to hurt us half as much as its going to hurt others.”
Regulus Partners agreed with McIver’s view, explaining: “As a brand and content driven business it is theoretically well placed to turn the tax to its advantage (ex Mandalay) but it will take strong operations management.”
It’s Mandalay business is considered more reliant on bonusing, but McIver said the firm had been experimenting with other offers in preparation for the tax and had seen no material change to revenues.
2. Vera&John looks set to be the fastest-growing brand for the foreseeable future
While the Jackpotjoy brand still makes up 70% of group revenues, Vera&John was the fastest growing brand in FY16 with 20% growth.
And that looks set to continue in 2017, even if that growth is expected to come with greater volatility than its peers thanks to its largely unregulated nature.
McIver said Vera&John had major plans for Asia, where it is set to build a B2B business by providing its casino platform and games library to local brands.
And while those unregulated revenues are set to increase, McIver said it would be balanced by growth in Sweden, which is in the process of regulating.
“We hope the liberalisation of the market will free up marketing which will benefit us,” McIver said. “Media space is very clogged on the few available assets, leading to virtually unprofitable CPAs.”
3. No sportsbook on the way
Management was asked by analysts whether JPJ would consider adding a sportsbook to aid in cross-sell and acquisition, in a similar move to some of its rivals.
Regulus Partners noted: “JPJ is a principally slots business, but the core driver of slots revenue (certainly in the UK, less so but significantly in Nordics and Spain) is sports betting, where JPJ is yet to establish an offer. This is likely to be the key driver of strategic success or failure.”
However, McIver said there were no plans for a sportsbook “anywhere in the portfolio in the near to medium term”, pointing out the firm has a very large female demographic in its customer base – even in the casino-led Vera&John brand – for which sportsbook would have limited appeal.
4. JPJ expects a major boost from cross-selling come April
McIver said an earn-out payment to platform provider Gamesys would be completed in April, after which the Jackpotjoy database could be applied to other parts of the business.
“It will be interesting to see what happens when we drop that database on Mandalay and Vera&John and start cross-selling between brands,” McIver said.
The CEO said it would be particularly helpful for Mandalay – the worst-performing of the three core brands with 1% growth – thanks to the bingo cross-over.
He added: “We are not quantifying the exact impact because we do not know yet, but in terms of management, it is one of the main focuses of peoples’ year.”
5. Debt first
The firm’s number one financial priority is paying down its debt which stands at more than £400m, or around 4x EBITDA.
“Our financial goal is to pay back the debt as fast as possibly can because that’s one of the things spooking investors,” said McIver.
“But we generate £100m of cash a year before interest and capex or around £60m after, so the leverage comes off very quickly. We’re aiming for leverage of 3.5x next year then 2.75x the year after that and then we can start thinking about paying a dividend.”
McIver also assuaged investor fears that further equity in the company would be issued to help service its debt, pointing to the firm’s “impressive” cash flow.