Fresh off a 38% FY26 return, this fundie is backing the house behind the lottery

The Lottery Corporation (ASX: TLC) operates Australia's lottery and Keno, but has seen its share price drop around 15% since late July. According to Hawkins, this is thanks to a “one in 45-year jackpotting sequence” that has impacted earnings as well as the potential deletion of TLC from the MSCI Index.

Hawkins runs the L1 Capital Catalyst Fund, a highly concentrated portfolio of around 10 stocks with an activist overlay, which returned 38.32% and was the second-best performing Australian equity fund in FY26 (behind only another L1 Capital fund).

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The top-performing Australian equities funds of FY26

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In this Q&A, Hawkins explains why TLC is the fund’s most recent investment despite the “unusually unfavourable jackpot cycle”, breaks down how a stock makes its way onto the Catalyst Fund’s watchlist, and highlights the widening gap in capex between the new and old economies.

What’s your most recent investment and why?

Our most recent investment is The Lottery Corporation. We think it is a high-quality business with significant barriers to entry which provides a very strong competitive market position.

The recent 40-year extension of its Victorian lottery licence means its next major lottery licence renewal is not until 2050, providing significant long-term earnings certainty.

We see a genuine opportunity under the relatively new MD and CEO Wayne Pickup, who has been in the role for less than a year, to grow the earnings base over time through operational improvements and the introduction of new game initiatives.

Current earnings have been impacted by an unusually unfavourable jackpot cycle, being a one in 45-year jackpotting sequence, which we do not believe reflects the underlying quality of the business.

With the number of infrastructure and infrastructure-like companies on the ASX continuing to shrink, we think The Lottery Corporation is a high-quality, defensive business with an attractive outlook over the next 12–24 months.

Which investment did you add to your watchlist this week?

We have not added a new stock to the watchlist this week. We run a concentrated portfolio of up to 10 stocks and maintain a similar sized, concentrated watchlist.

For a company to make our watchlist, it first needs to pass through our three investment gates: Value, Quality and have Catalysts. We form a view of the stock’s intrinsic value and then wait for the share price to trade at a sufficient discount for it to become a candidate to enter the portfolio.

What is the most recent investment you have trimmed or sold and what drove this decision?

We recently exited Chorus (ASX: CNU), the New Zealand telecommunications infrastructure company, after being a material shareholder for a number of years.

Our investment thesis had played out and hence we exited the holding. One of the key catalysts we had identified — the potential to increase the company's dividend payout ratio — had occurred, and the share price had increased as a result.

We continued to believe it was a high-quality business with an attractive longer-term outlook, but the stock had performed its role for us. At that point, we felt the better opportunity was to recycle the capital into companies where we see greater future share price upside with new catalysts yet to play out.

What’s your favourite chart or data point from this week?

This chart highlights the extraordinary divergence in capital investment between the new and old economies. Tech-related companies now account for more than half of S&P 500 corporate capex, while investment across commodity sectors is close to historical lows.

What makes this interesting is that demand for physical resources isn't disappearing. If anything, major structural themes including AI infrastructure, electrification and the energy transition are highly resource intensive. Years of underinvestment can constrain supply and create attractive opportunities for existing producers.

That dynamic is particularly relevant for the Australian market, where resources remain a significant part of the opportunity set, and it is a sector in which we continue to find interesting opportunities for the L1 Capital Catalyst Fund.

What was your weekly high – a standout market moment or highlight?

A good week for me isn't necessarily defined by what markets have done. It's one where we've had robust debate as a team and challenged our investment theses.

What was your weekly low – a market disappointment or challenge from the week?

The continued upward trend in the US 10-year bond yield is something we are watching closely.

What first drew you to markets or this sector and what continues to keep you inspired today?

What I enjoy most about markets is their dynamic nature. No matter how much work you do, no one has a crystal ball. Experience helps and you learn to recognise fact patterns, but every day is different. That variety is one of the most attractive parts of the job, along with the satisfaction of seeing an investment thesis play out over time.

Activist investing appealed to L1 Capital as we saw a genuine gap for this unique strategy via the launch of the L1 Capital Catalyst Fund in the Australian market. Activism is a strategy that has been successfully pursued overseas for decades, but there were very few activist funds of scale in Australia. We saw an opportunity to bring an activist fund to the Australian market at scale.

What’s one piece of advice you’d give to new investors?

Listen and learn from everyone. Everyone brings a different perspective and you can learn something new from most people.

The most insightful observation in a room doesn't necessarily come from the loudest or most experienced person, so stay curious and never stop learning.

How do you unwind when you’re not thinking about the market?

Sport consumes a large part of my spare time. I am a passionate AFL fan and I play a lot of tennis, run and swim. Outside of that, spending as much time as possible with my kids is how I like to switch off.

Rapid fire! 🔥

What is your favourite investing book?

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism by Jeff Gramm

Think there’s a better pick? Prove it. Share your rapid-fire book, podcast, and daily read in the comments.

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L1 Capital Catalyst Fund

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