Tabcorp Holdings Limited

TAH Details

Revised Proposal for the Wagering & Media Business: Tabcorp Holdings Limited (ASX: TAH) is engaged in the provision of gambling and entertainment services. The market capitalisation of the company as on 27 April 2021 stood at ~$10.66 billion. As per a recent update on 27 April 2021, the company has received a revised unsolicited, non-binding proposal from Entain plc in relation to a possible acquisition by the firm for Tabcorp’s Wagering & Media business. The enterprise value is pegged at $3.5 billion for the purpose of the deal. However, the proposal is subject to several conditions including due diligence, arrangement of capital, and receipt of all relevant regulatory approvals.

H1FY21 Results Update: During the period, the company reported revenues of $2,870 million, and an EBITDA of $560 million. The results were impacted due to the COVID-19 pandemic disruption. However, the Lotteries & Keno business recorded decent digital growth and strong gaming portfolio performance. It declared a dividend of 7.5 cents per share during the period.

H1FY21 Financial Performance (Source: Company Reports)

Key Risks: The company operates in a sector where it is constantly dependent on its infrastructure and systems for revenue. Any disruption or major outage might have an impact on its profitability.

Outlook: It expects to derive cost synergies of $95 million of annual EBITDA savings, from business integration. It further plans to drive increased digital penetration in its Lotteries & Keno business and develop Oz Lotto game change.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The debt position of the company stood at $2,759 as of 31 December 2020. The stock of TAH is trading above its average 52-weeks’ levels of $2.763-$5.060. The stock of TAH gave a positive return of ~50.30% in the past six months and a positive return of ~74.32% in the past one year. On a technical analysis front, the stock of TAH has a support level of ~$4.691 and a resistance level of ~$5.07. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a correction of low single-digit (in % terms). We believe the company can trade at a slight premium to its peer median P/E (NTM Trading multiple), considering the benefits of cost synergies, impressive digital growth, and decent cash position. For the purpose, have taken peers such as Star Entertainment Group Limited (ASX: SGR), Skycity Entertainment Group Limited (ASX: SKC), Jumbo Interactive Limited (ASX: JIN). Considering the current trading levels, recent rally in the stock price, decline in net margin and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $5.000, up by 4.166% as on April 27, 2021.

TAH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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