By 
It has taken some time but shares in Jackpotjoy, the bingo-led gaming services operator tipped here in October last year, are starting to gain some momentum and risk-tolerant investors can continue to give them a whirl in light of two encouraging recent announcements.
First, the company’s first-quarter results in May were solid. Gaming revenues rose by 13pc year-on-year, average active customer numbers rose by 7pc and net losses per share halved.
Acceleration in the top line is particularly pleasing since the company had previously flagged growth of 12pc for January and February. The Spanish business led the way here. Meanwhile, cash flow rose and net debt fell slightly from the year-end figure.
Second, Jackpotjoy has confirmed the final earn-out payment relating to Botemania, a Spanish acquisition made three years ago. This suggests that the purchase is at the very least meeting expectations and also provides greater clarity on the company’s finances.
Both of these developments bring the issue of dividends back into focus, especially as Jackpotjoy has already successfully refinanced its debt at a lower rate of interest. No dividend is expected for 2018 but distributions could start in 2019, further adding to the valuation attractions of a stock that trades on barely eight times forward earnings.
That lowly multiple reflects ongoing concerns about the company’s acquisitive history, its 2017 switch from the Toronto to the London Stock Exchange and the dangers posed by Britain’s regulatory environment.
The imposition of a point-of-consumption tax did prompt a slowdown in the UK business in the second half of 2017 and Jackpotjoy responded with increased spending on marketing. This needs to translate into improved customer additions in the second half of this year.
In this context, investors should note the 25pc slide in the shares of Aim-quoted Stride Gaming since its cautionary comments on the impact of the UK levy in late May, although it is a pure play on the British market whereas Jackpotjoy gets around a third of its revenues from beyond these shores.
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As a result there are still clear dangers with Jackpotjoy in terms of regulation, tax and the balance sheet (which still has plenty of debt), so the stock is best suited to risk takers willing and able to withstand losses in their pursuit of profits. Yet the UK tax could be an opportunity too. The levy could squeeze smaller rivals, which could start to lose market share in the face of Jackpotjoy’s marketing onslaught.
As the firm’s finances become less complex and cash flow starts to rise, any firm commitment from management on dividends for 2019 could be a powerful catalyst for the share price. There are still substantial risks but the chances of a jackpot in the form of those all-important dividends continue to rise.
Questor says: hold
Ticker: JPJ
Share price at close: 884p
Update: Tesco bonds
The 11pc capital gain on Tesco’s 5.5pc 2033 bond since our first look in October 2016 makes the current running yield 4.7pc, given that the £5.50 annual coupon now comes on a price of £118, not the issue price of £100.
More pertinently, the yield to maturity is 3.8pc, adjusting for the fact that any buyer at £118 will receive the £5.50 in coupons each year but get back only £100 per bond on redemption.
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The question for potential buyers now is whether they think 3.8pc is enough to justify the risks.
Credit risk appears to be decreasing as Tesco’s operational performance improves and the Booker acquisition beds down. Interest rate risk seems modest, at least in the short term, given that the Bank of England appears to be in no rush to raise borrowing costs. The bond market’s view is clearly that rates will remain lower for longer, given how yields on 10-year and 30-year (gilts) are refusing to rise much.
That leaves inflation risk. This column has no crystal ball and any holder or would-be buyer needs to consider where inflation could get to before maturity in 15 years’ time. But Questor believes that the bond remains a solid holding for income seekers.
Questor says: hold
Ticker: 31CM
Bond price at close: 118.625p
Russ Mould is investment director at AJ Bell, the stockbroker
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