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Jackpots deliver for Tabcorp despite softer wagering

Glenn Freeman  |  13 Feb 2019Text size  Decrease  Increase  |  
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An unprecedented rate of jackpots helped Tabcorp (ASX: TAH) to a $210.6 million profit result for the first half of fiscal 2019.

This was more than double the result for the first-half of 2018, but up just over 11 per cent in pro-forma terms, which adjusts for the acquisition of Tatts during calendar 2017.

Morningstar equity analyst Daniel Ragonese says the overall result for the narrow moat company was satisfactory, despite being slightly below market expectations.

Player numbers hit 3 million

A high rate of favourable jackpots within the group's lotteries division, where revenues climbed almost 20 per cent, is a key reason for the result, says Ragonese. "Six jackpots of $50 million or more during the half is an unprecedented level," he says.

This was called out by Tabcorp managing director and CEO, David Attenborough, who cited "more frequent Powerball jackpots", along with game innovation and investment in its digital businesses, for the result.

He said big jackpots, such as the $100 million bonanza in August last year, helped drive customer acquisition up 13 per cent during the half, with more than 2.98 million registered players.

The lotteries division underpinned the Tatts acquisition, and contributed $252 million of group earnings before interest, tax, depreciation and amortisation.

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Horse racing is part of Tabcorp's gambling network

Wagering and media, which includes its bricks-and-mortar retail operations, contributed $230 million EBITDA to the group, but revenue was down 3.7 per cent on 2018.

"Wagering turnover was actually okay, but the amount they had to spend in order to acquire those customers was higher," Ragonese says. The increasingly competitive betting space has seen companies trying to differentiate themselves by offering incentives, referred to as "generosities" by Tabcorp management.

"Tab turnover growth of 2.2 per cent translated to a revenue decline of 3.1 per cent due to a significant increase in generosities and lower fixed odds yields," said Tabcorp's Attenborough.

Improved synergy outlook

Morningstar's Ragonese also highlighted management's improved outlook for "synergies" stemming from the ongoing integration of Tabcorp and Tatts.

"These have been revised upward, and particularly improved synergies on the cost side," he says.

Tabcorp said it will deliver $55 million of EBITDA from synergies and business improvements in the full year fiscal 2019 – lifted from its prior guidance of $50 million. Management said it is on track to grow this figure to between $130 million and $145 million by fiscal 2021.

A fully-franked interim dividend of 11 cents a share, payable on 13 March 2019, was also announced.

Tabcorp was trading at $4.64 at midday, down slightly from $4.80 at the market open.

is senior editor for Morningstar Australia

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