Pollard Banknote (PBL) is one of the leading providers of products and services to the lottery and charitable gaming industries globally.
It is the largest provider of instant tickets in Canada, and the second-largest producer of instant tickets in the world. The company is also the second largest supplier of iLottery systems in the United States, through a 50%-owned joint venture, and the second largest provider of charitable gaming products in North America.
This demonstrates its dominant leadership position in the market. The majority of the company’s revenues are generated in the United States (61% in 2020), followed by international (i.e., mainly Europe and Asia) which was 20%, and lastly, 19% in Canada.
As of December 31, 2020, Pollard obtained most of its revenues from the sale of instant tickets (including iLottery) which accounted for 84.1% of sales.
Furthermore, the company also manufactures and sells paper products for the charitable gaming market (i.e., pull-tabs, bingo paper, and vending machines), which accounted for 10.4% of revenues.
The remaining 5.5% of revenues originated from its acquisition of INNOVA Gaming Group Inc. in 2017.
For more context on the scale of Pollard, the company sold over 14.5 billion instant tickets, 1.5 billion bingo cards, 1.8 billion pull-tab tickets, 715 vending machines and 2,800 charitable gaming machines in 2020, despite the COVID-19 pandemic. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Lottery & Gaming Industry
The lottery and gaming industry includes lotteries, charitable gaming organizations, Internet gaming, pari-mutuel wagering (e.g., horse racing), sports betting, and games associated with casino operations.
In 2019, the North American lottery market generated $89.1 billion in revenues. The worldwide lottery market generated revenues of approximately $310 billion.
The regulatory environment in North America prevents new large lottery entrants, which has largely limited the market to three companies (Pollard Banknote, Scientific Games [SGMS], and International Gaming Technology [IGT]).
This positions Pollard Banknote well to capitalize on the growth in the U.S. instant ticket market. The U.S. instant ticket market has grown at a compound annual growth rate (CAGR) of around 6.3% from 1995 to 2020.
Pollard Banknote has shown the ability to take market share and grow above the industry rates, with 8.5% CAGR in it’s instant ticket sales business from 2012-20.
iLottery
iLottery is the sale of tickets and instant tickets online. This is a relatively new distribution channel in North America, as it is slowly being legalized.
Pollard management notes that a number of North American lottery companies are in the process to set up their own websites to sell products. This is a large growth market for Pollard.
For example, Michigan was the first state to adopt iLottery and saw an increase in iLottery sales from under $25 million in 2015, to over $225 million in 2020.
In 2020, 44% of total lottery sales were iLottery sales in Michigan. This shows the opportunity for growth that Pollard Banknote has as it grows into multiple States.
Acquisition Strategy
Apart from growing organically, Pollard also aims to grow through acquisitions.
A recent acquisition made by Pollard Banknote is the acquisition of Next Generation Lotteries in January 2021 for €$36 million. This company is a leading provider of retail lottery management and iLottery solutions.
Furthermore, Pollard Banknote acquired Compliant Gaming, a leading provider of electronic pull-tab (e-tab) gaming systems and products to the charitable gaming market. The acquisition closed in December of 2020 for $19 million.
Before that, Pollard acquired mkodo, a digital product offering that has world-class apps for betting, gaming, and lottery sectors in February 2020 for £7.8 million.
Bottom Line
While the gaming industry continues to grow within North America, Pollard Banknote is well positioned to capitalize on iLottery growth while maintaining it’s strong profitability going forward.
As the economy reopens, casinos and in-person gaming will return to normal and drive volume growth for Pollard.
Disclosure: The author works as a manager at National Bank Financial and had no position in any of the companies discussed in this article.
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