Jumbo still looking like a gamble

Jumbo Interactive leaps on news it's renewing its agreement with Tatts Group.

Jumbo Interactive (JIN) is the best performing stock on the Uncapped 100 this morning on news that it has renewed its agreement with Tatts Group (TTS) to resell the latter’s lottery tickets in Victoria for another five years.

The online lottery reseller jumped over 6% in early trade to $1.88, a near two-month high, as worries about Jumbo’s relationship with Tatts eased.

There is a fear in the market that Tatts may cut Jumbo off as Tatts pursues its own online ambitions, and it is this fear that was primarily responsible for Jumbo’s 40% plus crash in its share price since it hit a 13-year high of $3.23 in February this year.

Jumbo’s Victorian reseller agreement expired on June 30, 2013, and the company could strike a similar deal with Tatts for the other states as those agreements come due.

However, it is worth noting that the Victorian agreement can be cancelled at any time with a 30-day notice from either party.

Further, the stock is hovering close to the average broker price target of $1.99 a share and is on a one-year forward price-earnings multiple of over 15 times.

Jumbo is trying to diversify its risks by expanding into other regions, like Europe and the US. The strategy makes sense but is capital intensive, and the payoff is probably still some time away.

Jumbo Interactive is part of the Uncapped 100.

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