Should I Buy Tabcorp shares

With a massive return of 41.86%, many investors are starting to take a second look at Tabcorp shares, but what does their upcoming demerger mean for would-be-shareholders? Should I Buy Tabcorp Shares?

Tabcorp Shares Price

Tabcorp has had a very impressive year for investors with the share price rocketing up a massive 41.86% YTD.

TAH has pushed much higher than the S&P/ASX which has returned over 29%.

Long-term shareholders have been left largely disappointed in TAH results after realizing flat prices over the last five years. Luckily returns have been saved by TAH’s dividend yield. Thanks to this TAH has a total return of 5.47% per year averaged over the last five years

Tabcorp is trading towards the upper-end of its 52-week range of $3.24-$5.30

Tabcorp is currently trading around a market cap of $10.8 Billion. To put this into perspective that is a similar market cap to Seek, Computershare, and QANTAS.

How To Buy Tabcorp Shares? In order to buy shares in Tabcorp, you will need to open a brokerage account, Prophet Recommends a low-cost CHESS-sponsored brokerage platform such as Pearler.

Should I Buy Tabcorp Shares About

Tabcorp is not only Austrlalia’s largest; but one of the world’s largest gambling companies. The group was formed with the merger of two large companies: Tabcorp Holdings Limited and Tatts group in 2017 to form the Tabcorp group.

Should I Buy Tabcorp shares, TAH ASX, Tabcorp Shares Price

Today the group operates a number of well-known diversified gambling providers including The Lott, Keno, TAB, Sky Racing, and MAX

TAH ASX: Lotteries and Keno

The Lott is a market leader in Australian lotteries. In FY21 the Lott and Keno realised revenues of $3.206 Billion. Its licensee brands include Tatts, NSW Lotteries, Golden Casket and SA Lotteries. The Lott’s game brands include:

  • TattsLotto
  • Lotto
  • Gold Lotto
  • XLotto
  • Oz Lotto
  • Powerball
  • Set For Life
  • Super 66
  • Lucky Lotteries
  • Instant Scratch Its
  • Lotto Strike
  • Keno

The Lott products are sold in 3,700+ outlets across Australia, with Keno operating in 3,600+. In calendar 2021, the Lott has a massive 3.8 million active registered customers.

TAH ASX: Wagering and Media

Tabcorp is the market leader in Australian wagering, operating under the TAB brand.

In FY21 the group delivered $2.298 billion in revenues. TAB takes over 1 billion bets annually and has 57% revenue market share and 26.6% marketshare over the online bet-taking market.

TAH ASX: Gaming Services

MAX operates gaming services across 3,500+ venues across Australia. In FY21 the segment realised 183 million in revenue.

The History of Tabcorp ASX

The Tabcorp group is the result of the privitsation of the Australian state’s TAB boards, which were established in the 1960s to legalize off-course totalisator betting.

Tabcorp losyed on the ASX in 1994 and later the acquisition of Star City Holdings in 1999 and the following year in 2000 it acquired Structured Data Systems which developed wagering and Keno systems and animated games.

Tabcorp later merged with Jupiters Limited in 2003 and a year later completed a takeover for Tab Limited, the NSW-based wagering, and media company, including Sky Channel.

In 2011 Tabcorp demerged its casino operations resulting in Tabcorp’s casinos business being separately listed as Echo Entertainment Group. The existing wagering, media, gaming, and Keno businesses were retained by Tabcorp.

Tatts group acquired the remaining state’s TAB business, and a number of lottery busniesses before the two groups later merged. Source 1, 2

Should I Buy Tabcorp Shares Dividend History

TAH shares typically announce a dividend with the release of its half-yearly results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (Interim Dividend) and September (Final Dividend).

TAH shares have paid a dividend every year since 1995. This includes the 2008 GFC and COVID recession. Although we did see them skip the final 2020 dividend. TAH shares pay dividends that are fully franked.

Tabcorp shares currently yield 1.54%, or a grossed-up 2.20%

The current average yearly dividend for TAH shares is $0.075 giving them a very attractive net yield of 1.54% or a gross yield of 2.20% at the current share price. We have seen their dividend yield shrink over the last five years.

Should I Buy Tabcorp Shares for their Dividend?

Based on their current yield Tabcorp does have a decent dividend yield of 1.54%, or a grossed up 2.20%. This may seem attractive compared to the average term deposit yield of 0.4%.

Our ASX research report found that the average dividend yield across the ASX is 3.22% (net).

We never purchase a company based solely on their dividend as this is often not a reliable metric for overall performance. Not all dividend stocks are solid investments. A massive dividend yield can be a red flag as it may be altered due to a massive fall in share price, poor prospects, or a special one-off dividend. For this reason, it is important to consider the business as a whole.

One high dividend stock that we like is CBA. CBA has a gross yield of around 4.25%, and a strong balance sheet to support this. You can have a read of our CBA dividend report here.

Should I Buy Tabcorp shares, TAH ASX, Tabcorp Shares Price

Should I Buy Tabcorp Shares Investor Sentiment

You may ask yourself, what do other investors think of Tabcorp shares? After surveying 134 Investors about their current TAH shares sentiment: BUY-HOLD SELL, as well as their target price over the next 12-months here are the results;

Should I Buy Tabcorp shares, TAH ASX, Tabcorp Shares Price

The results from this survey show there seems to be no strong investor sentiment on TAH shares. So how much are TAH shares worth? Let’s get into it.

Should I Buy Tabcorp Shares Fundamentals

Market Cap$10,863,709,795
Shares Issued2,221,617,545
ASX Rank48
PE39.7x
EPS12.3 cps
Volume 4W Avg5,466,822
VWAP$4.96
PEG2.3x
NTA per Share-$1.58
ROE4%
ROA3.6%
Debt$2.568 Billion
Equity$6.696 Billion

Based on their current share price we can see TAH shares have a PE of 39.7x, which is well above the current inflated average of 20.8x. TAH recently returned to profitability after realizing a negative result in 2020. A company with a high PE could be seen as overvalued or may have great investor sentiment.

Currently, TAH shares sit in the high PE band.

PE 20+: The company is overvalued/has high investor sentiment regarding growth

The Ultimate Stock DD Checklist

TAH ASX Beta:

TAH currently has a beta of 1.52. Beta is a measure of a stock’s volatility in relation to the overall market. Higher Beta stocks are said to be riskier but provide better return potentials, Source: Investopedia.

TAH ASX Earnings, Debt, and NTA per Share:

We can see TAH shares currently have earnings per share of $0.123, this gives it its overvalued PE of 39.7x. Another way of looking at this is 2.52% of their share price is backed by solid earnings.

TAH has $2.568 Billion in debt. Tabcorp’s debts are well covered by earnings, although their debt level has increased over the last five years. Their Net Tangible Assets per share is -$1.58. This means their debt levels are higher than their tangible assets.

Tabcorp’s EPS has been volatile over the last few years and is expected to stabilize and grow over the next two years.

Should I Buy Tabcorp Shares Financials

Tabcorp released its Full-year results in August here are the results:

  • Group revenue up 8.8% and EBITDA1 up 11.3% vs pcp
  • Gearing: 2.4x gross debt/EBITDA
  • FY21 Dividend 14.5 cents per share, up 31.8% on pcp, 80% payout ratio

TAH ASX Lotteries & Keno:

  • Record profit result (despite below average jackpots)
  • Digital turnover growth of 30%; resilient performance in retail
Should I Buy Tabcorp shares, TAH ASX, Tabcorp Shares Price

Lotteries & Keno revenues were $3,206m, up 9.9% on the pcp, and EBITDA was $620m, up 14.4%. The strong growth was driven by game development, and active portfolio and sequence management. Customer-centred improvements continue to deliver better player experiences, increased digital conversion and greater retail integration.

TAH ASX Wagering & Media:

  • Improved performance and growth across TAB, Media and International
  • Digital wagering turnover growth of 27%; resilient performance in retail venues when re-opening after lockdowns.
Should I Buy Tabcorp shares, TAH ASX, Tabcorp Shares Price

Wagering & Media revenues were $2,298m, up 10.3%, and EBITDA was $414m, up 11.6%. Revenue growth was achieved across each of its three businesses of Wagering, Media, and International.

TAB wagering turnover grew 16.8%, however lower fixed-odds yields and increased use of customer generosities in a highly competitive market unfavorably impacted revenue conversion. Digital wagering turnover grew 27% and the retail venues channel was resilient when it re-opened after lockdowns.

TAH ASX Gaming Services – heavily impacted by venue restrictions in 1H21

  • Venue Services continued to be heavily COVID-19 impacted
  • Progressing with implementation of the plan to simplify and streamline the business

Gaming Services revenues were $183m, down 17.2% and EBITDA was $71m, down 15.5%. The business was heavily impacted throughout the year by reduced fees earned during the periods of lockdown and density restrictions, especially in Victoria which has most of the Venue Services gaming machines under contract. MAX Venue Services revenues declined 34.0%. A $122 million non-cash impairment of Gaming Services goodwill reflects reduced expectations for future growth and contract extensions, particularly due to the ongoing COVID-19 impacts.

Gaming Services’ MAX Regulatory Services (gaming machine monitoring) business was more resilient, with revenues up 18.3%.

TAH ASX Income Statement

Between FY20 and FY21, TAH has managed to grow its revenues 8.8% to a total of $5.686 Billion. Despite a challenging year the group has managed to return to a profitable NPAT of $269 Million.

Should I Buy Tabcorp shares, TAH ASX, Tabcorp Shares Price

TAH ASX Balance Sheet

Tabcorp has managed to strengthen its balance sheet during FY21. We can see that although the group’s total assets have reduced slightly, their total liabilites have been reduced by 19%. A lot of this is the result of the group issuing a capital raise during the year.

We can see they currently have $898 Million in current assets, this includes $424 Million cash.

Should I Buy Tabcorp shares, TAH ASX, Tabcorp Shares Price

TAH ASX Cash Flow Statement

We can see that during the year Tabcorp raised $600 million from a capital raise. This was used largely to pay down the companies substantial debt. The group also paid out $146 million in dividends.

Should I Buy Tabcorp shares, TAH ASX, Tabcorp Shares Price

Should I Buy Tabcorp Shares Technicals

The general consensus within the Technical Analysis community is currently bearish on TAH shares. The moving averages and Technical Indicators seem to indicate a Strong Sell.

Trading Central believes the upside prevails as long as $4.79 is supported. However, in the case of a downside breakout of $4.79, investors should look for $4.67 and $4.6.

NameValueAction
RSI41.074Sell
STOCH21.786Sell
STOCHRSI37.403Sell
MACD-0.012Sell
ADX35.662Sell
Williams %R-85.714Oversold
CCI-80.8330Sell
ATR0.0321Less Volatility
Highs/Lows-0.0111Sell
Ultimate Oscillator42.815Sell
ROC-2.200Sell
Bull/Bear Power-0.0540Sell
Source: https://au.investing.com/equities/tabcorp-holdings-limited-technical

TAH Shares Insider Ownership and Trading

We can see that the general public and institutions own the majority of Tabcorp shares. This is a common trend amongst most listed shares. We can see individual insiders have very small ownership of 0.1%.

We generally like companies with large insider ownership. Skin in the game helps ensure the management’s motives are in line with ours. For large-cap companies’ insider ownership will be lower, 3-5% would be decent in this case.

The lack of insider ownership may seem like a red flag, however, it is important to recognize that TAH is an ex-government-owned business that has been privatized. We see that all privatized companies have the same proportion of ownerships as TAH, this includes CBATLS, MPL, QAN, SYD, SUN, and CSL

Top 3 TAH Shareholders

OwnershipNameSharesCurrent Value
7.86%AustralianSuper Pty. Ltd.174,180,122A$851.7m
5.5%BlackRock, Inc.121,798,304A$595.6m
4.81%The Vanguard Group, Inc.106,462,742A$520.6m

We can see across the top three shareholders of TAH is major equity firms BlackRock and Vanguard. Both of which have funds and ETFs which hold large ownership in a lot of global equities. Australian Super also has large ownership in the group.

Insider Transactions TAH 2021

DateActionValueNameShares
30 Aug 21Buy$145,050Bruce Akhurst30,000

We can see the only insider transaction in 2021 has been Bruce Akhurst, non-executive director of TAH who purchased 30,000 shares at a value of $145,050.

Tabcorp Demerger

A Tabcorp demerger has been pushed for years by investors and has finally come to tuition after the group’s announcement in July. The groups intention is to demerge the lotteries and keno business from the other subsidies, creating two market leading companies: Lotteries & KenoCo, Wagering & GamingCo

Both groups would remain as ASX listed companies.

  • Lotteries & KenoCo
    • A new standalone listed company that comprises its Lotteries & Keno (L&K) business.
  • Wagering & GamingCo
    • The existing listed Tabcorp group continuing to hold the Wagering & Media (W&M) and Gaming Services (GS) businesses.

The group is expecing the demerger to be executed by June 2022.

TAH ASX Why Demerge?

  1. Creates two market leading businesses with focused management
  2. Shareholders continue to benefit from the increased scale and diversification already achieved through the combination with Tatts Group
  3. Shareholders retain full upside from potential future regulatory reform and international expansion opportunities in Wagering & Media
  4. Allows each business to adopt a more focused operating profile and an optimised capital structure more aligned to its core operations
  5. Shareholders preserve the ability to benefit from participating in future M&A activity in respect of both Lotteries & KenoCo and Wagering & GamingCo
  6. Creates access to new and different investor categories with different investment preferences and ESG criteria
  7. Allows shareholders to value each business on a standalone basis with potential for market re-rating

The Resulting Businesses: Lotteries and KenoCo Vs Wagering and GamingCO

Tabcorp (current)Lotteries & KenoCoWagering & GamingCo
FY20 Revenue ($m)5,224 2,917 2,305 
FY20 EBITDA ($m) 542 454 
FY20 transactions560M tickets sold1.1B wagering bets taken
Digital share of business turnover32.1% for Lotteries;
17.1% for Keno
59.0% for Wagering 
Number of customers~8.7M active lotteries customers~1.9M active wagering customers
Number of venues~3,800 lottery outlets; ~3,400 Keno outlets~4,300 wagering venues
Number of employees4,350950 3,400

Lotteries & KenoCo’s assets will have infrastructure-like qualities and high cash generation with relatively low capital requirements. The stock is expected to act more like a stable blue-chip company.

Wagering & GamingCo will benefit from ongoing investment to drive growth in its core business, as well as for inorganic growth opportunities and license renewals. The business is likely to act as a higher growth stock, targetting agressive growth across international markets and parntership oppotunities.

TAH Demerger Costs

The group’s demerger will result in one-off costs of around $225-275 million and ongoing costs of A$40-45 million a year. These annual costs would be the result of duplicate administrative, headoffice, and listing costs across the seperate busineses.

The group is well capitalized with $424 Million cash-in-hand to fund the demerger.

Betmakers

Betmakers Technology group (BET) is also an ASX listed company with a market capitalization of $1.1 Billion. The group originally submitted a proposal in May to acquire Tabcorp’s Wagering and Media Business. The opportunity would have seen BET pay $1 Billion in cash to TAH and an additional $3 Billion in BET shares.

This deal was cut and replaced with the Tabcorp demerger proposal set to take place in 2022.

“Having received clarity from Tabcorp regarding the planned direction for its Wagering and Media business, BetMakers will continue discussions with Tabcorp regarding international opportunities, and we believe these opportunities have the potential to be significant.

Despite the deal breakdown, gambling giants Tabcorp and Beatmakers will continue to seek international growth strategies together. The exact details are unclear at this stage. Although ventures in the US are likely.

Should I Buy Tabcorp Shares Prophet’s Take

At its current valuation, it’s hard to get excited over Tabcorp shares. In terms of earnings and assets, the company seems largely overvalued without an impressive ROE or ROA to justify the share price.

Tabcorp’s share price has remained stagnant over the last five years with investors relying on dividends for returns.

If the group’s demerger goes ahead this could add excitement for investors as the Wagering and Gaming arm of the business is expected to have further growth opportunities. TAH’s likely move to the US could also help add some capital growth opportunities for shareholders.

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