In today’s daily we have covered stock research on Tatts Group. 

S&P 500 was up by 19.33 points or 1.05% to 1862.31 on Wednesday. S&P 500 rose with the index capping its best 3 day rally in 2 months. Wall Street continued to do well from its recent sell off with positive data on the Chinese economy, plus encouraging U.S outlook and corporate releases offered much needed confidence to the investors.

Chinese GDP grew by 7.4 percent in the first three months of 2014 compared to the same period a year earlier. There was relief in the commodity markets that the Chinese growth had not slowed as much as feared. Copper rose 1.2 percent in London to $6,619 a tonne, while Brent crude settled at $108.60 a barrel, up 24 cents. Industrial production rose 0.7% in March, more than expected while February’s increase was revised up sharply  from 0.6% to 1.2%.


S&P 500 Daily Chart   (Source – Thomson Reuters)
 
S&P ASX 200was up by 32.10 points or 0.60% on Wednesday and closed at 5420.30 points. Australian shares closed 0.6 percent higher on Wednesday, with big miners bouncing back on solid production data and China showing slightly better than expected GDP growth in the year to March. Trade was thinned by the upcoming Easter and Anzac Day holiday period, but the market hovered near six-year highs marked last week, with broad gains in miners, banks, IT, healthcare and consumer staples.

There is much speculation that Fortescue Metals (FMG) will fall short of its annual guidance. With 31.5 million tonnes shipped in the March quarter, it has to increase its exports by 32% to 41.6 million tonnes in the June quarter to achieve its annual guidance. ABC television network has been granted the permission to do business with broadcasters across China in regards to its programming. A drop in production and revenue has led to a drop of 6% in Iluka shares.


S&P ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-
 

Code	Company	Price	Change	%Change
KAR	Karoon Gas	$2.76	$0.16	6.15%
TEN	Ten Network	$0.265	$0.015	6.00%
CGF	Challenger	$6.45	$0.34	5.56%
EGP	Echo Entertainment	$2.78	$0.13	4.91%
BRU	Buru energy	$1.21	$0.055	4.76%

 
 
Stock of the Day – Tatts Group (TTS)
 
Tatts Group (Tatts) is a provider of gambling services in Australia and the United Kingdom. The principal activities of Tatts include the operation of regulated lotteries in Victoria, Queensland, New South Wales, Tasmania, Australian Capital Territory and the Northern Territory; the conduct of wagering and sports betting based in Queensland, South Australia, the Northern Territory and Tasmania; the conduct of monitoring and supply of jackpot and other value add services in Queensland, New South Wales and the Northern Territory; the provision of third-party installation, repair and maintenance services for gaming, wagering, lottery, banking, point-of-sale and other transactional equipment and systems throughout Australia, and the operation of licensed gaming venues throughout the United Kingdom.
 
Tatts again delivered a solid result. Top line lottery trends were impacted by a softer jackpot cycle but Lotteries results were boosted by a full six month contribution from SA Lotteries which saw lotteries EBITDA up 6.4%. Offsetting this was a weaker result from TattBet which reported EBITDA decline of 4.2% as it increases its investment in marketing and digital capabilities. 


Source - Tatts

A standout of the result was the very strong cash generation during the half . Operating cash flow of $280.9m represented a cash conversion ratio of 172% which was partly boosted by timing differences at year end as well as lower cash tax.


 Tatts Daily Chart  (Source - Thomson Reuters)
 
With lotteries remaining a relatively stable business the key focus going forward will be on whether or not Tatts can turnaround the soft trends in its wagering business. Various initiatives are underway on this front including a new website, new brand, increased investment in marketing, refreshed retail network and expanded product offering. We believe the stock is overvalued at its current price and would review the stock at a later date.

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