r/valueinvesting
Brightstar Lottery entering Q3 with their best rollover environment in years.
Author is long Brightstar Lottery, expecting a Q3 revenue boost from three major jackpots converging, viewing the drop as a value play.
- Rare "jackpot convergence" with three major lotteries rolling into Q3, driving frenzied ticket sales.
- Strong underlying market position as the primary tech provider for 8 of the top 10 global lotteries.
- Attractive valuation and high 8% dividend yield following a significant share price drop driven by temporary Q1 bad luck.
- Q1 suffered from low jackpot runs interrupted by small wins, failing to attract casual players and leading to short selling.
- Significant cashflow risk from a massive €1bn+ license fee in Italy.
- Market concerns regarding the sustainability of the company's high 8% dividend yield.
As some of you may already know from my previous posts, I have been tracking this company as a value play for the last couple of months. It was a few weeks ago that I noticed that not only was this a value play, but also an imminent possibility of a re-rate, due to a rare phenomena in the lottery business known as jackpot convergence.
Now these guys you've probably never heard of before my posts, but they are as big a deal in the lottery world as you'll find. From their website, "The primary technology provider for 8 out of the 10 world’s largest lotteries".
Now if you read my previous posts, you might have thought I was a bit crazy to invest so heavily into one stock and you may be right, we'll see. But I've run the numbers daily for a couple of months now and I'm as certain as they come that Q2 beats Q1 due to the jackpot momentum. Q1 was a really unlucky month for the company. They had a couple of low jackpot runs that were interrupted by small wins, which doesn't attract the casual player who are willing to gamble their money for the headline-worthy prizes. This led to some shorting, coupled with the cashflow risk of the massive €1bn+ license fee to seal Italy (their key demographic) and also the talk surrounding the sustainability of the 8% dividend. The share is down a significant amount. Hence the value play that attracted me to the share.
Mega Millions, Super Enalotto have not been won for the entire quarter. This means that both of these jackpots are approaching frenzy sales right at the start of the quarter. The Powerball was won once this quarter but has rolled over since and has rebuilt to a $350 million jackpot, with 2 more draws before Q3 begins.
Now, as we are right at the end of the month it means that there is a significant chance that all 3 rollover into the start of Q3 and the market has completely ignored this. One jackpot entering frenzied sales is a big deal. 3 at the same time is massive for the company.
Also there has been lots of good news for the company this quarter.
Q3 is starting with a new CEO
Share buyback scheme repurchased shares, hinting toward positive cashflow.
New contracts and extensions have been agreed/due to come online imminently.
I'll be continuing with my purchases of this share the longer the rollover streaks continue, as Q3 could be one of their best quarters for years, especially with the second half of the financial year expecting new contracts coming online.
Do some research on this one. Yes all 3 jackpots could be won on their next draws, but then you've still got a great company with long term government contracts and an 8% dividend.
Give me 5 reason to invest in this trash instead of MSFT at 20 pe
You can invest in more than one stock without bashing it mind. Just take a look for yourself, it's a value play for sure.
But you didnt answer my question ? Is this trash a better investment than MSFT, META, MELI, NOW ?
You seem like a jackass lmao. Idk anything about the stock but “im not trying to be a jerk, but is this trash a better investment than blah blah” you keep calling it trash 🤣 that’s a jerk thing to do
You keep saying trash like it's a speculative small cap?
Nobody knows what will be a better investment. But if you'd like we can compare your 4 suggestions Vs mine over the next week/month and play who was right if you like? I've got nothing bad to say about any of your picks
I mean I think I did say 5 things in the post that were positives but if you'd like a quick list sure thing.
New CEO
8% dividend
Share buyback scheme is active
High jackpots increase sales
Secured new contracts
Brazil contract coming live, new revenue.
I'd be careful capitalizing the rollover into the thesis at all. Best in years is pretty much the definition of a non-repeating tailwind, jackpots are random and mean revert, so a hot Q3 mostly just borrows demand that a quiet stretch later gives back. The part actually worth paying for is the contracted systems and facilities management book, those deals run multi year and are sticky, and that's the real toll road here. If the bull case is leaning on rollovers you're paying up for luck.
Yes, I agree. But the point is cashflow, which is why the market has underpriced this company for right now. If cashflow is no longer an issue then the market will need to rethink on its price. We shall see soon enough I suppose.