Tabcorp Holdings Ltd (TAH) - Half Year Results 2018

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08 February 2018

Results

Half Year 2018

Half Year 2017

Change

Revenue ($m)

1,376.2

1,159.3

+18.7%

Profit before Significant Items ($m)

82.0

102.7

-20.2%

Bloomberg Consensus ($m)

96.4

 

 

Significant Items ($m)

57.4

43.8

+31.1%

Net Profit After Tax ($m)

24.6

58.9

-58.2%

Bloomberg Consensus ($m)

25.4

 

 

Interim Dividend ($)

0.11

0.125

-12%

Tabcorp (TAH) profits slump on significant items and Tatts (TTS) merger 

  • Tabcorp (TAH) has fallen short of the market’s expectations with both its underlying and net profit despite a lift in revenues over the first half of 2018. The gaming group’s bottom line was held back by the sluggish performance of its UK start-up (Sun Bets), an increase in one-off costs as it completed its merger with Tatts Group (TTS) and lower racing revenue. While most of its business units fell short of analyst hopes, CEO David Attenborough said that the “result reflects a period of reshaping the Tabcorp business for sustainable growth”.
  • TAH will pay eligible investors a fully franked $0.11 per share interim dividend on 13 March 2018. It will trade ex-dividend (the key date that determines investor eligibility) on 13 February. TAH has a ~2.5% dividend yield. The group successfully completed its $11bn merger with the company behind Oz Lotto and Powerball, Tatts Group (TTS) on 17 December 2017. TAH expects the integration to take two years at which time it anticipates at least $130 million in synergies and business improvements per year. The results included 18 days’ worth of contributions from TTS (accounted for ~13% of the group’s total revenues). TTS last traded on the ASX in mid-December (delisted on completion of tie-up). 
  • Write-downs were significant, lifting by 31% over the half due mainly to costs relating to the merger with rival Tatts, its UK Sun Bets business and costs associated with the closure of Luxbet (its online betting business in NT). Not including significant one-off items however, profits still fell by a worse than anticipated 20% to $82 million. 
  • Sun Bets remained a disappointment, recording an EBITDA loss of $22.5 million and contributed to ~$49m of its write-downs. While its performance in the second quarter improved, the UK start-up remains under review. Its Wagering & Media business (TAB) remained its biggest contributor to earnings (~70% of EBIT), although sluggish revenues and lower underlying earnings due to a drop in racing revenues was one of the main weights on the group’s result. Legal costs and the discontinuation of Luxbet also held back the division. Its Keno unit went backwards as far as its profitability with revenues remaining flat due to “…an unfavourable jackpot sequence”. 
  • Its second biggest earner, Gaming Services was the best improver with double digit earnings growth. This can be attributed to a full six months of trade of its Intecq acquisition (a gaming technology company bought in 2016 for $128m) which has been fully integrated. 
  • Looking ahead, TAH provided no fresh guidance for the full year although Bloomberg consensus for net profit (including significant items) is ~$153m. Its merger with Tatts (TTS) will contribute more substantially over the second half and will continue being integrated. Updates on the review of its underperforming Sun Bets business will receive some attention as the unit has been holding the company’s results back for some time. 

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