The latest quarterly results from Flutter (which owns Sportsbet) and Entain (Ladbrokes), Tabcorp’s (ASX: TAH) key competitors, show that tough operating conditions in Australia are persisting. Both companies are experiencing declining net gaming revenue in the region.

Why it matters: Wagering in Australia is experiencing numerous headwinds. Weak economic conditions amid cost-of-living pressures have caused gambling spending to decline. This is occurring alongside increasing regulatory burdens, such as the ban on credit cards for payment.

  • But there are signs of improvement. Entain noted that wagering volumes appear to be stabilizing in Australia, and Tabcorp expects modest wagering growth in fiscal 2026, driven by weak economic conditions and improving consumer confidence.
  • We maintain our fiscal 2026 EBITDA forecast of $412 million for Tabcorp, an improvement of 5% on fiscal 2025. We forecast revenue growing at single digits through to fiscal 2030.

The bottom line: We retain our fair value estimate for no-moat Tabcorp of $0.93 per share. Shares are currently trading in line with our intrinsic assessment,

  • We forecast that wagering growth will resume in fiscal 2026 and that operating leverage will improve earnings as the top line grows. Real income growth in Australia has turned positive, driving improved consumer confidence and discretionary spending.
  • But we also expect intense competition to persist. We think Tabcorp’s physical locations are in structural decline amid the long-term shift to digital channels. There is no shortage of online operators like Sportsbet offering free bets and promotions in an effort to capture market share.

Coming up: The Australian government’s proposed gambling advertising restrictions have stalled in parliament. The proposed legislation includes limits on advertising inducements such as free bets. We think stricter advertising laws would benefit larger, more established brands like TAB.

Tabcorp is investing in digital to defend against international competitors

We expect Tabcorp to remain unparalleled in physical wagering. Stringent regulatory licensing requirements create barriers to entry to compete with Tabcorp’s retail locations, such as racing venues, pubs, and TAB agencies. However, the pari-mutuel model is in decline as punters increasingly choose fixed-odds betting, and technological change means geographic exclusivity no longer translates to a monopoly.

Once a key competitive strength, wagering has become Tabcorp’s Achilles’ heel. With the ubiquity of smartphones, Tabcorp’s previously entrenched physical locations are increasingly competing with online players, where barriers to entry are much lower. Retail outlet exclusivity has little value when punters can place bets with competitors from their phones while in TAB-exclusive venues. We expect punters to show little loyalty to bookmakers, and increasingly compare odds between competitors before placing bets. In a similar trend witnessed in retail venues, we expect the online channel facilitates increased transparency between competitors.

We think this trend toward digitization accelerated during covid-19 shutdowns, as forced closures and social distancing requirements weighed heavily on Tabcorp’s retail venues and most betting ordinarily made at retail locations has transferred to online platforms. While we expect Tabcorp’s digital offerings to pick up some of this online activity, we anticipate market share leakage. The online space is much more competitive, with players like Sportsbet and Ladbrokes constantly looking for ways to increase market share at the expense of Tabcorp.

Bulls say

  • Tabcorp’s retail exclusivity and extensive brick-and-mortar distribution presence place the company in a strong position to migrate its large wagering customer base to a omnichannel environment.
  • Long-life wagering licenses furnish Tabcorp with a stable earnings and cash flow profile, underpinning a relatively high dividend payout ratio.
  • Tabcorp’s retail wagering venues are set to benefit from fewer restrictions, allowing punters back into pubs.

Bears say

  • A protracted decline in wagering or persistent market share losses would have an outsize impact Tabcorp’s earnings due to operating deleverage.
  • Digital wagering is taking market share, and online competitors challenge Tabcorp’s traditional stranglehold on wagering.
  • Regulatory risks hover above Tabcorp. The introduction of onerous gambling harm-minimization measures would weigh on company earnings.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.