The Lotteries Corp (TLC), Australia’s largest lottery operator, released their first half results for 2026 this morning, a clean result better than expectations and demonstrates that the house always wins in the end. The HNW portfolios have a 2.5% weighting to TLC.

Key Points

  • Profits Down: TLC earnings down only -1% to $173M, a very good outcome as we were expecting a bigger decline due to unfavourable Powerball and Oz Lotto jackpot outcomes, which normalise over time. We were pleased to see this temporary loss offset by a) a new Saturday lotto, b) increased higher margin digital sales, and c) higher Keno and Instant Scratch-Its sales.  In the half, there is only 1 Oz Lotto jackpot > $70M versus a long-term average of 4. Hundred-million-dollar jackpots attract greater publicity and more entries, plus TLC get to keep the interest on the pot until the winner is drawn.
  • Robust Balance Sheet: TLC’s balance sheet remains robust, with a leverage ratio of 3.0 times below the target range of 3-4x earnings. This leaves TLC management with the flexibility to return excess capital to shareholders.
  • Dividend: TLC announced an interim dividend of 8 cents per share, flat with last year.
  • Outlook: TLC management did not provide specific guidance for the business but discussed greater digital penetration, new product opportunities and price increases for Set For Life.
  • Why is the stock up?  TLC’s base business is performing well and has increased its digital penetration among customers, with 42% of sales now online, up from 33% in 2021. Digital sales are a much higher-margin product, with shareholders pocketing the 20% margin that would normally be paid to newsagencies to distribute lottery tickets.

Portfolio Strategy: TLC, Australia’s most stable gaming company, holds the monopoly licence to run lotteries in all Australian states except WA. TLC’s lotteries business, which holds long-duration licences (average expiry: 2042), provides investors with stable and defensive earnings, making it a very attractive potential takeover target. The increasing digital penetration of lotteries and keno played on smartphones enhances TLC’s profit margin, as revenue leakage to newsagents and clubs is reduced.  Since 2005, lotteries spend has grown at an average growth rate of 4%, growing every year except for 2011. Times of stress, such as 2008-2010 and 2020-2022 paradoxically were very strong periods for lottery sales.  TLC trades on an earnings multiple of 14.7x with a 4.1% yield – cheap in our view for a monopoly business.

TLC finished up +7% to $5.52