Pollard acquisitions paying off

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This article was published 05/01/2021 (1708 days ago), so information in it may no longer be current.

Pollard Banknote bet $80 million on two acquisitions just before year end that will further establish its strong presence in the growing iLottery business.

The Winnipeg instant ticket printer paid $24.3 million for a company in Minnesota called Compliant Gaming LLC that provides electronic ticket purchases in bars and restaurants via in-house tablets, and another $56 million for a European company called Next Generation Lotteries, which develops games and provides iLottery services to European and Asian lotteries.

The deals come at the end of a year that was knocked out of kilter by the pandemic. Early in the year, Doug Pollard, company co-CEO, said it was unclear how the COVID-19 lockdowns were going to affect Pollard Banknote’s business.

At first, during March and April, the overall market was down about 20 per cent but after that ticket sales grew significantly and iLottery activity, where it is allowed, grew as well.

By the end of September, company revenue was up 4.2 per cent compared to the same period in 2019.

And even before these latest acquisitions were made, the market started to take notice of the value of Pollard’s presence in the iLottery market — buying instant tickets online — and its shares started to go up and have doubled in value since October.

Robert Young, an analyst with Canaccord Genuity Capital Markets, said one of the reasons for the rise in Pollard’s share price starting in October was that investors got a better picture of the iLottery market after Pollard’s partner in the business, NeoGames, an Israeli company, went public in the U.S.

“It gave us better insight into the size of the business,” he said. “Lots of NeoGames’ revenue is dependant on its relationship with Pollard. NeoGames is trading at a very high valuation so investors started looking at that and realized that a significant chunk of the iLottery stuff that NeoGames is doing is dependant on the joint venture with Pollard.”

Young, like others, is now giving Pollard the benefit of the doubt and just raised his target price on Pollard shares from $25 to $40.

Pollard shares closed on the TSX on Monday at $35.86, just shy of the 52-week high of $36.50.

Young points out that while Pollard makes just pennies on the sale of a scratch-off ticket, it can make significantly more on the sale of a instant win ticket purchased online.

The other potentially important element of the acquisition of Next Generation Lotteries — nominally based in Austria but most of its 130 staffers are in Iceland with others in Norway, Finland and Serbia — is that now Pollard owns the iLottery technology allowing it to further expand in Europe. It relies on NeoGames for the software technology in North America where iLottery play is only available in a couple of states and one province (Alberta) in Canada.

“We are, without question, the market leader in iLottery principally in the U.S.,” Pollard said.

While Young said there is at least one company that might dispute that, it has been hard to tell because Pollard does not break out its iLottery financial results.

But its iLottery contract with the Michigan Lottery, which was just extended for another four years, is clearly recognized as the most successful iLottery jurisdiction.

“Of all the iLottery transactions about 80 per cent goes through us,” said Pollard. “And Michigan is our biggest client and it is the most successful iLottery in the U.S.”

Pollard gets paid a percentage of the net gaming receipts (revenue less prize payouts) from iLottery sales that run on its platform.

While Young believes that the iLottery business will start to drive more of the growth for the Winnipeg company, Doug Pollard prefers to remain conservative in his expectations.

For one thing, the industry itself is very conservative and it takes time for state and provincial regulators to license online gaming of any kind.

As well, Pollard points out, playing instant win tickets at your local convenience stores is much “crisper” and more straightforward than doing so online. Winning on a paper ticket can reap instant cash payout. The online version is less immediate.

“It’s not like Kodak film (that was made obsolete by digital photography),” Pollard said. “We are still keen on investing in the paper tickets. But the iLottery business is a nice complement.”

He said the company’s North American joint venture with NeoGames is very successful.

“Next Generation expands our geographic footprint and will let us take advantage of relationships we have with lotteries all over the world.”

martin.cash@freepress.mb.ca