Company Overview: Tabcorp Holdings Limited is engaged in the provision of gambling and entertainment services. The Company operates through three segments: Wagering and Media, Keno and Gaming Services. It manages customer brands, including TAB, tab.com.au, Luxbet, Sky Racing, Sky Sports Radio, Tabcorp Gaming Solutions (TGS), Keno and Trackside animated racing game. It conducts wagering activities under the TAB brand in Victoria, New South Wales and the Australian Capital Territory through a network of agencies, hotels and clubs; provides on-course totalisators at thoroughbred, harness and greyhound metropolitan and country race meetings; and via the Internet, mobile devices, phone and pay television. Its Gaming services segment is engaged in the supply of electronic gaming machines and specialized services to licensed gaming venues. Its Keno segment includes Keno operations in licensed venues and TABs in Victoria, Queensland and Australian Capital Territory, and in licensed venues in New South Wales.


TAH Details

Tabcorp, well known as one of the few integrated gambling and entertainment companies in the world, has three core businesses; Wagering and Media, Lotteries and Keno, and Gaming Services. The Group delivers these services to people through its retail, digital and Sky media platforms. The Group has been working hand in hand with its partners, because it is at racecourses and stadiums, as well as in pubs and clubs, and that is what it does truly to manage customers. Tabcorp’s mission is to drive commercial success through championing social and sustainable ways to play and its mission supports its shareholders, customers and the community. It generated $813 million for its racing industry in FY17 and reported for having about 475,000 TAB account customers. TAH deals with products like Sky Racing, Keno, TGS and eBET etc.Sky Racing and Sky Sports Radio have been experts in racing and sports analysis programs and Keno is a fun, lottery-style game that gives customers a chance to win $1 million every three minutes. FY2017 was a strategically important year as the group undertook significant initiatives to better position itself to deliver sustainable growth and made investments in acquiring Intecq, establishing Sun Bets. As an effort under sustainable growth, the group has acquired Tatts Group and the combination is expected to set diversified gambling entertainment group.


Reconciliation of the Income Statement of Tabcorp and Tatts for the six months ended 31 December 2017 (Source: Company Reports)

Extension of Partnership with Greyhound Racing Victoria- The Group announced an extension to their longstanding partnership with Greyhound Racing Victoria and the agreement included TAB naming rights for Victoria’s biggest greyhound events including the Melbourne Cup Carnival, the Top Gun race series, the Australian Cup Carnival and the community-focused Great Chase. Further, this partnership extends to all 13 greyhound racing clubs across Victoria with TAB to have an extensive signage presence on track and exclusive digital rights. This reaffirmed Tabcorp’s ongoing strong relationship with GRV and it is looking forward to work closely with its greyhound partners in Victoria. If we look from a wagering perspective, the growth in greyhound racing in Victoria is pleasing and the Group is thrilled to renew its partnership with GRV. Moreover, TAB will continue to sponsor the TAB Great Chase initiative, which has provided hundreds of thousands of dollars to disability groups across Victoria as well as unique and fun experiences for groups at its tracks. It is worth noting that if the new Victorian and West Australian models had applied to the Tabcorp group in FY18, and in the absence of any mitigating strategies, the estimated NPAT impact would be approximately $5 million.


Trend of the Group’s Debt Structure (Source: Company Reports)

Other Key Achievements- The Group is delighted to be a major partner in the upcoming movie about Michelle Payne’s historic Melbourne Cup win, Ride Like A Girl alongside the Victorian Government and Racing Victoria and TAB helps in connecting millions of Australians to racing and many have a great story to tell about backing Michelle Payne and Prince of Penzance in the 2015 Melbourne Cup. Recently, its wholly owned subsidiary Tatts Online Pty Ltd had exercised in full its option with Jumbo Interactive Limited (ASX code: JIN) (Jumbo) to acquire approximately 3.5 million Jumbo shares at an exercise price of $2.37 per share and further the Group sold approximately 2.9 million Jumbo shares to institutional investors.


Jackpot Performance (Source: Company Reports)

After this Tabcorp’s shareholding increased in Jumbo from approximately 6.6 million shares to approximately 7.2 million shares (representing 12.49 per cent of Jumbo shares on issue post share issuance from the option exercise). New racing bet rates have been levied for wagering on all Western Australian racing, commencing 1 August 2018 and for the first time Racing Victoria has introduced a category for tote derivative bets. Besides this, the Group proposed early exit from its UK-facing Sun Bets online gambling joint venture as the Sun Bets performance remained unsatisfactory in the first half of the year. The management confirmed that they were in discussion with News UK about the premature evacuation.


Trend of Digital share of sales (Source: Company Reports)

Overview of Financial Performance- On the financial front, EBITDA margin expanded by 280 bps and recorded 21.4 per cent in 1HFY18 as compared to the previous six months. Net margin turnaround was in positive territory to 1.8 per cent in 1HFY18 from previous six months (-7.4 per cent), despite the higher effective tax rate (72.4 per cent) during the period. The Group completed the combination with Tatts Group in December 2017 and the 1HFY18 financial result reflects a period of reshaping the Tabcorp business for sustainable growth. Tabcorp’s Wagering & Media revenues were $1,000.7 million, up 1.4 per cent. EBITDA was $181.8 million, down 7.3 per cent. Wagering revenue growth, ex-Luxbet, was up by 2.6 per cent. Tabcorp’s Gaming Services revenues, which included a full six months of Intecq trading compared to one month in the pcp, were $83.3 million, up 38.4 per cent. EBITDA was $46.3 million, up 28.6 per cent. The Group announced a fully franked interim dividend of 11.0 cents per share with a dividend target of 90 per cent of NPAT in FY18 before significant items, amortisation of the Victorian Wagering and Betting Licence and Sun Bets.


Overview of Financial Performance of the Group (Source: Company Reports)

Positive Outlook - Australian wagering industry has faced major changes in the last decade hurting the competitive positions of Tatts as well as Tabcorp. Moreover, favourable fiscal and regulatory environment in the Northern Territory led to a major growth of corporate bookmakers. But these corporate bookmakers did not have the same regulatory requirements and racing industry funding requirements like Tatts or Tabcorp, as they are giant firms. TAH is also progressing with its digital expansion strategies while retail partnerships are being strengthened through digital commissions model and launch of Keno digital play. The Group has reshaped its business and has created a strong platform for sustainable growth, with a clear set of priorities to drive growth across each of its businesses. The combination with Tatts is planned to deliver at least $130 million per annum of EBITDA synergies and business improvement benefits in the first full year after integration. The Group will target Gross Debt/EBITDA ratio of 3.0-3.5x and intends to maintain an investment-grade credit rating.

Stock Performance - The Group’s portfolio of brands is diverse, ranging from iconic consumer brands to gaming and venue service and has world-class entertainment. It is globally acknowledged for its responsible practices through inclusion in the Dow Jones Sustainability Index and the FTSE4Good Index and these indices are used by investors to identify companies that meet globally recognised corporate responsibility standards. It accelerated its digital investment in its Wagering and Media and Keno businesses, while Gaming Services continued to expand geographically. The Group has been recognised as one of Australia’s leading promoters of workplace diversity after being named an Employer of Choice for Gender Equality for the third consecutive year which recognises Tabcorp’s achievements in working towards a diverse workplace.

Rising popularity of sports betting has led several independent Australian corporate bookmakers to be acquired by major international wagering companies as part of an aggressive targeting of the Australian market by global wagering companies. This was something that TAH also considers of importance and has undertaken few moves accordingly. ROE improved from (5.1 per cent) as on 30 June 2017 to 0.5 per cent as on 31 December 2017 and ROIC moved from (3.1 per cent) as on 30 June 2017 to 0.4 per cent as on 31 December 2017. In the meanwhile, the share price has been rising since last three months and was up by 9.95 per cent and by 54.98 per cent in the last 5 years as on 6 July 2018. We give a “Buy” recommendation at the current market price of $4.65 (inching closer to the average of 52 week high and low prices) and the Group is trading at a solid dividend yield and is continuously executing and targeting growth opportunities across its business divisions.


TAH Daily Chart (Source: Thomson Reuters)

 
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