Long-Term Lottery Digitisation And Belgium Contract Will Support A Stronger Future Earnings Profile

Catalysts

About Pollard Banknote

Pollard Banknote supplies lottery and charitable gaming products and related digital solutions to government and charitable customers.

What are the underlying business or industry changes driving this perspective?

• Rollout of the proprietary Catalyst iLottery platform in Kansas, combined with the upcoming deployment for the Belgium National Lottery, points to a growing base of long term, technology heavy contracts that can widen Pollard Banknote’s digital revenue mix and support EBITDA and earnings.
• The 12 year central gaming system contract in Belgium, covering retail systems, player accounts, loyalty and logistics, adds a sizeable, multi faceted technology revenue stream that can increase visibility on cash flows and support margin stability over time.
• Winning the primary instant ticket supply role with the California Lottery, the largest U.S. instant ticket market, effectively doubles Pollard Banknote’s share there and can lift instant ticket revenue and help support gross margin through higher proprietary product sales.
• Expansion of high quality digital game content, with more than 145 games live across 9 jurisdictions and a focus on eInstants and eTabs, positions the company to benefit as lotteries and charities keep shifting more spend toward digital formats, with potential upside to both revenue and net margins.
• Charitable gaming growth supported by ICON eTab cabinets, kiosks, and the Pacific Gaming acquisition, together with improving game content after Minnesota regulatory changes, creates room for volume recovery and mix improvement that can support gross profit and EBITDA.
• Pollard Banknote’s NeoPollard Interactive joint venture, which reported higher income in 2025 on strong eInstant and draw based sales in key states, offers additional exposure to online lottery growth and has already contributed meaningfully to adjusted EBITDA and net income.

Assumptions

This narrative explores a more optimistic perspective on Pollard Banknote compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Pollard Banknote's revenue will grow by 6.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.8% today to 14.4% in 3 years time.
• The bullish analysts expect earnings to reach CA$103.2 million (and earnings per share of CA$3.57) by about March 2029, up from CA$34.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.6x on those 2029 earnings, down from 14.5x today. This future PE is lower than the current PE for the CA Hospitality industry at 13.7x.
• The bullish 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 8.23%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The Kansas iLottery rollout is currently generating negative gross margins and requires ongoing amortization of the Catalyst platform and other start up costs. If revenue growth from this contract is slower than expected or jackpot activity is weaker for an extended period, the business could be carrying a structurally lower gross margin profile for longer, which would weigh on EBITDA and earnings.
• Charitable eGaming, particularly eTabs in Minnesota, has already been hurt by regulatory changes and required significant game redesign to partially restore play levels. Any further regulatory tightening in key charitable jurisdictions or slower than hoped recovery in Minnesota could cap volumes in eTabs and related cabinets, limiting revenue growth and putting pressure on gross profit and EBITDA.
• The company is taking on long duration technology contracts such as the 12 year Belgium central gaming system and multi year loyalty and iLottery deals. These contracts come with substantial upfront CapEx and intangibles investment and higher amortization, so if implementation timing slips, clients change scope, or technology requirements rise faster than budgets, the returns on these projects could be lower than anticipated and drag on net margins and earnings.
• Pollard Banknote is increasingly exposed to foreign exchange through revenue and costs tied to the U.S. dollar and euro, and recent quarters already show FX having a material effect on revenue and reported foreign exchange gains or losses. Prolonged currency swings against the Canadian dollar could create volatility in reported revenue and net income even if underlying unit demand is stable.
• A meaningful portion of profit comes from the NeoPollard Interactive joint venture and from specific iLottery contracts such as Michigan, one of which is expected to end around July 1, 2026. Contract expiries, non renewals, or lower jackpot activity that reduces eInstant or draw based play could result in lower equity income, depressing EBITDA and net income versus what bullish expectations might assume.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Pollard Banknote is CA$41.0, which represents up to two standard deviations above the consensus price target of CA$34.25. This valuation is based on what can be assumed as the expectations of Pollard Banknote's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$41.0, and the most bearish reporting a price target of just CA$29.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be CA$715.0 million, earnings will come to CA$103.2 million, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of CA$18.6, the analyst price target of CA$41.0 is 54.6% 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.