Post by
FormerHedgie on Nov 14, 2024 12:00pm
Some additional thoughts on the quarter.....
I appreciate some people's optimism but I think $30 is a big goal for now. One thing I didn't mention is that Pollard is a seasonal business and Q3 is by far their strongest quarter as scratch tickets are very popular gifts during Christmas / holiday season so I hope that people don't try to annualize this quarter.
Historically, there can be a drop in Q4 and Q1 is traditionally quite quiet. PBL also has a pattern of some sales being pulled forward or push out as large orders fall on either side of a quarter which can distort things from quarter to quarter.
There does appear to be a favourable long-term FX trend that will help PBL. The strength of the USD vs CAD will continue to give the optics of higher sales and profitability. At some point, the FX trend will reverse itself. I first started speaking with PBL when the dollar was near parity and the stock was around $3 so it is important to stay mindful of non-operational varabiles that may be near their peak and will reverse at some point.
Also, regarding the share price today and over the next few days, I think it is important to remember that there is still a large short position in PBL's stock. This, so far, has been a very profitable trade. Perhaps the improved fundamentals reported yesterday will prompt some shorts to cover. They could be up 40% on their short, the gap up today could be short covering. I would just be cautious about buying the gap up. Once the excitement subsides, the stock tends to be very quite and could trade back down (I expect this to happen).
There was definitely good fundamental progress that mostly came from the instant ticket business that was surpressed upto now. Since I used to cover this stock as a sell-side analyst many years ago, the future was / is the iLottery business. The margins and potential for growth is what has (and could) driven the share price appreciation.
It is important to recognize where the iLottery business currently is. The loss of Michigan was very important financially and symbolically. I suspect the loss of Michigan was a surprise to Pollard. I think they likely had to much trust / faith in their NPI partner NeoGames which lead to the loss of a very important contract. I would say the gloves are off now.
To me, NPI is pretty much dead except for the contracts that still remain. As they come due, they will be fair game. Pollard has now introduced Catalyst and won a contract. However, as we say with the Michigan decision, operating history is an important criteria when selecting a vendor. Kansas won't being until some time in 2025 and then will need at least a year to ramp up and prove itself. This was an important symbolic win but PBL needs Catalyst to be in the market and working well to establish its credibility.
I am pretty sure that Catalyst will have other wins. Determining how competitive it was and who were the other vendors is important. PBL's iLottery business is still wounded but they are making all the right moves to recover. As with most injuries, time is mostly what is needed for PBL's iLottery business. In the meantime, the Michigan revenue / profits are going to go to zero as will New Hampshire.
I will buy back a large position in PBL but I don't think I have reached that point yet. I also really want to see the short interest in the stock decline as well.
Best of luck to everyone, especially to PBL. I really like the company and the management and wish them all the best as they continue to compete in a lucrative but competitive iLottery market.