Tabcorp Holdings Limited

Highest Revenue from Lotteries & Keno Business: Tabcorp Holdings Limited (ASX: TAH) is engaged in the provision of gambling and entertainment services. The company and its subsidiary UBET Qld Limited have recently been served with a statement of claim by Racing Queensland. The dispute relates to the calculation of fees following the introduction of point of consumption tax in Queensland.

In another recent announcement, the company updated on the appointment of Adam Newman as the new Chief Financial Officer, with his tenure commencing from early October 2019. His prior experience includes senior leadership roles at BlueScope in Australia and the USA.

1HFY19 Highlights: During the period, the company generated statutory revenue amounting to $2,787.4 million, up 108.3% on the prior corresponding period. NPAT for the period amounted to $182.5 million as compared to $24.6 million in pcp. Earnings per share during the period were reported at 9.1 cents, up from 2.6 cents in the prior corresponding period. During the period the company announced a fully franked interim dividend of 11 cents per share, paid on 13 March 2019.

1HFY19 Group Results (Source: Company Reports)

Business Results: Revenue from Lotteries & Keno business amounted to $1,409.2 million, reporting a rise of 18.1% vs pro-forma pcp.Wagering & Media business contributed $1,221.8 million of revenue and the remainder of $155.8 million came from gaming services. EBITDA from Lotteries & Keno business stood at $252.2 million, up 26.3% on pro-forma pcp. Wagering & Media EBITDA amounted to $230.6 million and that from gaming services amounted to $73.8 million.

Growth in Lotteries revenue was driven by game initiatives and ongoing investment in digital. The results were further pushed upwards due to favourable jackpots. Under Wagering & Media, the company grew customers and turnover on highly competitive market conditions. Its active customer base in the business grew to 533,000 at a rate of 6.7%. There was good progress in the Gaming Services business on the back of new venue sign-ups and contract renewals.

Outlook: The company is aiming to boost its business performance through continued investment in innovation and customer experience. It is focusing on a disciplined approach to capital investment, balance sheet management and operating expenditure with a focus on ensuring sustainable shareholder returns. There has been significant progress with respect to synergies and business improvements from the integration of Tabcorp and Tatts that are expected to deliver an EBITDA of $55 million in FY19, which was earlier expected to be $50 million. FY21 EBITDA target is in the range of $130 million and $145 million.

Stock Recommendation: The stock of the company generated returns of 1.32% and -5.91% over a period of 1 month and 3 months, respectively. During 1HFY19, the company portrayed a strong financial position on the back of diversification benefits from the merger of business with Tatts. The combined business is progressing well and is expected to generate remarkable EBITDA growth in the near future. Considering, the segment-wise and group performance in the second half & the expected growth from Tabcorp and Tatts synergies, we give a “Buy” rating on the stock at a current market price of $4.620, down 0.858% on 12 July 2019.
 

Qube Holdings Limited

Solid Growth in Underlying EPS: Qube Holdings Limited (ASX: QUB) is engaged in providing comprehensive logistics solutions across multiple aspects of the import-export supply chain. The company recently updated that Qube Logistics (Aust) Pty Ltd has completed sending the Bidder’s statement in relation to the off-market takeover bid by Qube, through Qube BidCo., for all the ordinary shares in Chalmers Limited.

The company recently completed the acquisition of mining and industrial services company LCR and its subsidiaries. The total consideration of $135 million was funded through its existing undrawn debt facilities.The acquisition comes with the benefit of additional geographical diversity and services capabilities for the company. It will provide Qube the ability to deliver enhanced spectrum mining and industrial services to its existing and future customers.

Financial Highlights: During the six months ended 31 December 2018, the company generated underlying revenue amounting to $859.5 million, up 5.9% in the prior corresponding period. Underlying EBITA for the period was reported at $93.6 million, up 11.7% on pcp. NPAT witnessed a rise of 20.3% on pcp at $64.6 million. The period saw solid growth in underlying earnings per share driven by improved earnings from all divisions and associates. EPS for 1HFY19 stood at 4.0 cps, up 17.6% on pcp.


Key Financial Metrics (Source: Company Reports)

Outlook: The company expects to deliver a solid second half earnings contribution (NPATA), much higher than pcp, although the overall underlying NPATA in 2HFY19 is expected to be lower than the first half. This comes on the back of an expected slowdown in container volume growth in the second half and seasonality in parts of the business. Overall, the company maintains its previous guidance to deliver a solid increase in underlying NPAT and growth in return to underlying earnings per share in FY19.

Stock Recommendation: The stock of the company generated returns of 6.16% and 9.54% over a period of 1 month and 3 months, respectively. Currently, the stock is trading close to its 52 weeks high level of $3.160. The outlook for FY19 represents a mixed scenario with expected solid growth in underlying NPAT in the presence of challenges pertaining to seasonality and container volume growth. Moreover, we are yet to see how the acquisition of LCR will add value to the business. Given the backdrop of aforesaid factors and current trading level, we have a watch stance on the stock at a current market price of $3.100, up 0.324% on 12 July 2019 and suggesting that investor should wait for a better entry level.

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