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Colin StewartPollard Banknote LtdPBL.TOTOP PICKAug 29, 2017

A really interesting company and not well known, but the 2^nd largest producer of instant scratch lottery tickets globally. Although a value investor, he likes this more now at $13 than he did at $8. They just made an acquisition and are expanding their business at video/lottery terminals. Has a new facility they built in the US to expand production capacity of instant scratch tickets by 35%. There are very high barriers to entry. Trades at only about 7X the EBITDA potential over the next couple of years, which should be more like a 9X multiple. Dividend yield of 0.9%. He can see upside to at least $18 a share. (Analysts’ price target is $15.50.)

Colin Stewart

Owned

Unlock Rating

$13.95

Stock price when the opinion was issued

$17.29

As of Jun 19, 2026. Market Open.

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TOP PICK

#2 in the world in instant printed lottery tickets, huge barriers to entry. All customers are governments. Huge input costs affected fixed-price contracts, but contracts are now being renewed at much higher prices. Lottery business is booming. Leader in iLottery. Margins will improve significantly. Yield is 0.67%.

(Analysts’ price target is $29.75)

PAST TOP PICK

(A Top Pick Mar 29/22, Down 19%)

It is the second largest supplier of printed lottery tickets and a leader in web based lottery tickets in the U.S. There are only three players allowed to sell printed lottery tickets for the government, all of which have trouble meeting demand. The only problem is the big increase in the costs of materials along with fixed price contracts with the government. However the new contracts are at higher prices so there should be a great increase in profits ahead. Margins should recover and do even better. Trading at 7X earnings.

BUY

A major core holding of his. Sports betting doesn't impact instant lottery tickets which is in fact booming. PBL leads in online lotteries. But shares got way overvalued because excitement over online lotteries and has come down (also due to higher raw costs like ink and paper). He sold then bought back shares. A high-quality, stable company. Drivers: an oligopoly of only 3 players, and governments constantly need revenues.

BUY

It is one of their core holdings. It is one of only three companies allowed to sell instant lottery tickets that they design and manufacture. The business is growing long term. Although costs are increasing there should be good long term margin improvement in the next few years.

BUY

He has been buying since it is very well priced and a great opportunity. Three players control the market. Margins are down a little bit in the last few quarters but contracts are now being renewed at much better prices. Low Capex and strong cash flow.

BUY

Family owns around 65% of company. Not a highly traded stock. Lottery tickets is largest component of business (steady business model). Smaller stock that isn't very liquid (don't expect much growth).

HOLD

Has not looked at the company for 1.5 years. Unsure whether current share price is presenting buying opportunity. Cost inflation is hard for the company. Does not own shares in the company. Well run company with high cash flow.

BUY

Core position. Sales and profits have gone up a lot. Second biggest in the world. E-lotteries are growing. Enormous barriers to entry. Higher input costs, which will get passed on when contracts are renewed. Amazing business, great valuation. Very well managed.

BUY ON WEAKNESS

Great company that is a good business. Stock price recently over valued, which has caused selloff. Current prices presenting good buying opportunity. One of three companies in the world allowed to print lottery tickets. Huge barriers to entry creates a good business.

TOP PICK

It's the second-largest supplier of lottery tickets in the world and the leader in electronic lotteries in the U.S. There are three such companies in North America, so there's a good moat. The stock has fallen to attractive levels. Demand for lottery tickets is so high that these companies are struggling to meet demand, though they face higher input costs (for paper and ink). PBL has added an extra shift to production lines. 2022 could be a record year for sales, though margins may not beat records. Brookfield is buying one of their competitors, which is a good sign. This trades at 9x earnings. Well-run with strong growth ahead, because governments needed money (through lotteries). (Analysts’ price target is $37.25)

BUY

Nothing wrong with this. This ran up to $60 because of an influential money manager in the US who vocally pushed this up. PBL also has business in digital lotteries, which offer far higher margins than traditional lotteries and has a lot of room to grow. This grows 20% a year consistently. The family are great stewards of capital. Shares fell because it got ahead of itself. He's fine with the current PE.

BUY

Great company with a strong business. American influence having negative influence on share price (investors selling shares). Current share price presents good buying opportunity. Has been buying in mid to high $30 share price. Huge barrier to entry in the business. Expecting strong financial results for 2022.

PAST TOP PICK

(A Top Pick Jan 25/21, Up 5%) He trimmed in the high 50s, recently buying it back in the high 30s. High conviction on this one. Huge barriers to entry. High margins and free cashflow. Stock pulled back on a missed quarter, since demand was so strong that sales had to be pushed to next quarter, setting that one up for strong numbers.

PAST TOP PICK

(A Top Pick Jan 25/21, Up 5%) The stock had a great run up over $60 and it has had a pullback. It is 2nd largest maker of instant lottery tickets in the world. There are only three players in North America. One of their highest conviction stocks they own. They had a rare earnings miss recently, because of high demand that forced sales into the next quarter (which should be a record one). A great time to buy as government continues to need revenues through gaming. They just added to their position in the high $30s and should be back into the $50s soon.

HOLD

Likes it here. A high return on equity business. The challenge is the upside they did not see with their iGaming side of the business. The valuation then did not make any sense. The cost issues are now dogging them. An interesting opportunity to re-visit the business at these prices. Would buy it at the right valuation.

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Colin StewartPollard Banknote LtdPBL.TOTOP PICKAug 29, 2017

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