RE:Top Pick POLLARD BANKNOTE (PBL TSX):
Pollard is the second-largest supplier of instant printed lottery tickets in the world and a leader in electronic lotteries (iLottery). There are only three players who print instant tickets for governments in North America and Europe, so huge barriers to entry. The instant ticket market continues to grow as governments need revenues from lotteries. Pollard’s shares were staging a strong comeback this year as inflation subsided on input costs such as paper, ink and foil which could not be passed on to government lotteries as contract prices were fixed. However, most of its contracts have now been renewed at much higher prices, and so the company expects strong sales growth combined with a strong margin improvement which should lead to record profits this year. The stock pulled back recently on news that they lost the renewal of an iLottery contract to its JV partner Neo Games. However, Pollard has an even newer technology to win iLottery contracts on its own and recently won the state of Kansas, so the stock jumped back up from its lows. We had trimmed our position in the $30s and are now buying back in the mid $20s. Note that Brookfield Business Partners paid US$6 billion or nearly 14 times EBITDA for Scientific Games’ instant lottery business a few years ago, which would value Pollard at over $40 per share. The stock is currently a bargain trading at under seven times EBITDA.