New US iLottery Contracts And Digital Investments Will Expand Future Opportunities

Key Takeaways

• The Kansas iLottery contract and repricing strategy are set to boost future revenues and improve margins in U.S. markets.
  
• Expansion of digital platforms and strategic acquisitions aim to enhance digital content sales and strengthen market position.
  
• Manufacturing inefficiencies and currency volatility could pressure margins and revenue, with strategic contract repricing and trade uncertainties posing additional risks.

Catalysts

Manufactures and sells a range of lottery and charitable gaming products and solutions in the United States, Canada, and internationally.

• The recent award of the Kansas iLottery contract, which went live in early 2025, is expected to bolster future revenues and serve as a reference for securing additional contracts in the U.S. market, enhancing growth in the iLottery segment.
  
• The repricing strategy for instant tickets is largely complete, with full impact anticipated in 2025, likely to contribute to improved gross margins and higher revenue.
  
• The expansion of the eInstant Games Studio and new implementations in jurisdictions like Ireland and Alberta are expected to drive increased digital game content sales, positively impacting revenue and profitability.
  
• Continued investment in digital gaming platforms, including the development of the Catalyst gaming platform and the E-Tab machines, are expected to enhance future revenue streams and bolster profit margins.
  
• Acquisitions of companies like Clarence J. Venne and new product integrations into the charitable gaming group are anticipated to strengthen market position and contribute to future earnings growth.

Pollard Banknote Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pollard Banknote's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.3% today to 10.1% in 3 years time.
• Analysts expect earnings to reach CA$65.3 million (and earnings per share of CA$2.92) by about March 2028, up from CA$35.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, up from 15.6x today. This future PE is greater than the current PE for the CA Hospitality industry at 15.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

Pollard Banknote Future Earnings Per Share Growth

Risks

• Manufacturing inefficiencies led to significant spoilage, negatively impacting gross margins and highlighting potential risks with high-value product production. This may affect future cost of goods sold.
  
• Lower instant ticket sales volumes decreased overall revenue; seasonal factors and strategic decisions not to pursue certain contracts until repricing are risks to consistent revenue generation.
  
• The Kansas iLottery start-up expenditures contributed to decreased margins, indicating initial costs in new contracts may pressure short-term profitability.
  
• The significant weakening of the Canadian dollar led to a $4.4 million net foreign exchange loss, which could affect net income if currency volatility continues.
  
• There is inherent uncertainty regarding potential impacts from tariffs and trade protection measures, creating risks around input and finished goods costs, and potentially influencing overall profitability and cost of sales.

Valuation

• The analysts have a consensus price target of CA$36.25 for Pollard Banknote based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$42.0, and the most bearish reporting a price target of just CA$32.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$649.1 million, earnings will come to CA$65.3 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 8.1%.
• Given the current share price of CA$20.29, the analyst price target of CA$36.25 is 44.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.