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Tabcorp's soaring profits miss expectations

Emma Rapaport  |  09 Aug 2018Text size  Decrease  Increase  |  
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Tabcorp (ASX: TAH) has swung to a net profit of $28.7 million in 2017/18 following its merger with Tatts Group, with digital sales and the FIFA World Cup helping to lift the gaming giant's reach and revenue.

On Wednesday Tabcorp said full-year revenue for the 2017/18 financial year jumped 71 per cent to $3.83 billion from $2.22 billion a year earlier.

But the latest results - up from a $20.8 million loss a year earlier - were cut back by significant items of $217.5 million, including additional merger costs and costs related to the loss-making Sun Bets and Luxbet operations.

Tabcorp announced it was exiting Sun Bets, a joint venture with News UK, in July, while it closed online operation Luxbet in December.

Morningstar analyst Daniel Ragonese welcomed the headline profits but notes the bulk of the growth was due to the half-year earnings contribution from the recently acquired Tatts.

"Had the acquisition taken place at the start of fiscal 2018, group revenue and underlying EBIT would have increased by a modest 3% and 2%, respectively," he says.

On a pro forma basis - adjusting to account for the impact of the Tatts acquisition and excluding Sun Bets - revenue was up 2.5 per cent to $5.11 billion and earnings 2.8 per cent at $989.2 million.

Overall, Tabcorp's earnings fell short of Morningstar's expectations, with Ragonese anticipating greater synergies to have flowed from the merger. Long term, he expects synergies including consolidating corporate overheads, rationalising the corporate property, and removing duplication of technology and sales departments to increase to $50 million in fiscal 2019, reaching the unchanged target of $130 million annually by fiscal 2021.

Ragonese's long-term outlook remains broadly unchanged following the results, leaving the $4.50 per share fair value estimate on hold.

Horse Racing Tab Full Year Results


Tabcorp's net profit of $28.7 million has miss analyst expectations.

AAP reports Tabcorp chief executive David Attenborough said the company planned on phasing out the UBET brand and replacing it with the TAB brand in late 2018.

TAB's online revenue rose 16.3 per cent, with a digital turnover of $5 billion, compared to a 3.3 per cent fall in revenue at retail venues.

Digital sales also rose strongly in Tabcorp's lotteries business, growing by 27.8 per cent and accounting for almost 18 per cent of total lottery sales.

Revenue from Tabcorp's wagering and media businesses was steady at $2.462 billion.

But while TAB's revenue growth was up 2.5 per cent, revenue at UBET - the wagering business owned by Tatts Group - declined by 0.7 per cent.

Mr Attenborough said despite customers shifting towards online gambling, bricks and mortar stores weren't going anywhere.

"It's really at the heart of a lot of Australian communities - their local pub and club," he told reporters.

"We do not see a development where you end up with digital without retail, all our long-term strategies are about the integration within the retail environment."

The FIFA World Cup helped boost TAB and UBET active customers by 8 per cent to almost 720,000, Mr Attenborough added.

Mr Attenborough also welcomed regulatory changes made by the state and federal governments, including the banning of synthetic lotteries and advertising restrictions during broadcast sports matches.

"Tabcorp is very well placed to perform in this improved environment," he said.

Tabcorp shares were up 35 cents, or 7.78 per cent, at $4.85 at 11am Sydney.

Tabcorp's full-year figures

  • Net profit $28.7m, up from $20.8m loss in FY2017
  • Revenue up 71.4pc to $3.829 billion
  • Full year dividend of 21 cents, including final dividend of 10 cents, fully franked


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Emma Rapaport is a reporter with Morningstar Australia.

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