Here’s why I’d buy this ASX 200 share with conviction if there’s a recession

If a recession were to happen, there is an S&P/ASX 200 Index (ASX: XJO) share that I think could be a reliable performer: The Lottery Corporation Ltd (ASX: TLC).

It’s worth pointing out here that a recession isn’t seen as likely in Australia at this stage.

In the Reserve Bank of Australia’s (RBA) latest release, it said that its central forecast for GDP growth is expected to slow to around 1.5% during 2023 and 2024. The RBA said that the recovery in spending on services following the lifting of COVID restrictions has “largely run its course and the tighter financial conditions will constrain spending more broadly”.

However, total GDP growth is not quite the same as GDP per person. A household could be having a tough financial time, even if the economy as a whole is still growing.

This ASX 200 share could see strength

It’s possible that a recession could mean that The Lottery Corporation sees an increase in demand.

Following is an excerpt from a Sydney University article about gambling and its effects:

In times of economic recession, gambling, particularly on lotteries, usually stays strong. Gambling during recession times is typically highest amongst those who are experiencing the greatest financial hardship as it represents a potential way out.

There are numerous studies and research that show lottery participation is not hampered during a recession and that lotteries are essentially “recession-resistant”.

The Lottery Corporation operates many of Australia’s lotteries and Keno businesses. It runs Australia’s largest lottery, The Lott, and operates in every state and territory except Western Australia.

It is well-placed to be able to reach customers. At last disclosure, it had more than eight million active customers, equivalent to almost half the Australian adult population. That includes more than four million active registered customers. The ASX 200 share said it has more than 7,200 points of retail distribution, with fast-growing digital channels too.

Growth is already being achieved

FY22 saw a record result after a strong FY21. Management said this result demonstrated the business’ resilience, defensive qualities, and the benefits of an omnichannel model.

In FY22, comparable group revenue rose 9.4% to $3.5 billion. Comparable group earnings before interest and tax (EBIT) increased 13.8% to $603 million. The lotteries division saw comparable EBIT increase 16.3% to $541 million.

The business is achieving growth even in the good times, so it will be interesting to see how the company performs in 2023 with the economy facing a tough outlook.

Planned initiatives

The ASX 200 share has outlined a few different initiatives it’s been working on to drive it forward.

It has innovated its game portfolio with bigger prizes and more winners, enhanced the customer experience, increased its digital penetration, evolved its retail footprint, including the continued rollout of digital advertising at the point of sale, and it’s pursuing new licences and other opportunities.

The Lottery Corporation share price snapshot

Over the past year, The Lottery Corporation shares have gone up 5%.

Based on the Commsec forecast, the ASX 200 share is valued at 31 times FY23’s estimated earnings with a potential dividend yield of 2.8%, excluding franking credits.

The post Here’s why I’d buy this ASX 200 share with conviction if there’s a recession appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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