Tabcorp shares down as wagering arm struggles in H1

Australian gambling operator Tabcorp was today counting the cost of a year-on-year decline in revenue and profit in its wagering and media business, with its share price down by almost 4%.

Group revenue for the six months through to December 31, 2018, amounted to AUS$2.79bn (£1.54bn/€1.76bn/US$1.98bn), up from AUS$1.34bn in the first half of its 2017-18 financial year.

Tabcorp was boosted last year by its merger with Tatts Group, which went through in December 2017. On a pro-forma basis – assuming Tatts was part of the Tabcorp business for the entirety of 2017 – group revenue was up 6.1% year-on-year.

The gambling company cited a strong performance by its lotteries and keno arm as the main reason behind this growth, with revenue from this division climbing 18.1% on a pro-forma basis to AUS$1.41bn. 

However, the same could not be said for Tabcorp’s wagering and media and gaming divisions. Wagering and media revenue slipped 3.8% to AUS$1.22bn, while gaming services revenue also declined 4.0% to AUS$155.8m, both on a pro-forma basis.

This seemingly had a negative impact on the markets, with Tabcorp shares closing today (February 13) at AU$4.580, 3.98% down on its opening price

Meanwhile, Tabcorp was able to reduce its operating expenses by 3.2% on a pro-forma basis from AUS$474.0m in the first half of 2017 to AUS$459.0m.

This was partially down to synergy benefit within its wagering and media arm, the closure of Luxbet following the Tatts merger and what Tabcorp described as disciplined cost management in the business.

Tabcorp also posted an increase for EBITDA from continuing operations before significant items, with this amount rising 9.1% pro-forma to AUS$554.3m. In addition, EBIT climbed 11.3$ pro-forma to AUS$404.7m. Once interest of $96.3m and tax expenses of $97.8m were taken out, Tabcorp's operating profit stood at $210.6m, more than double H1 2017-18's total. Net profit after tax, minus significant items and discontinued operations, came in at $182.5m, up from $24.6m in the prior year.

Reflecting on the results, David Attenborough, managing director and CEO of Tabcorp, paid tribute to the performance of the lotteries and keno arm, and while he did not comment on wagering and media, he said the gaming services business is performing as planned despite a drop in revenue.

“Tabcorp delivered a strong financial result in 1H19 on the back of the diversification benefits from the combination with Tatts,” he said. “We have created a sustainable and diversified gambling entertainment company, with the scale to invest and grow.

“The performance of lotteries was the standout in 1H19. The strong performance was driven by digital growth and game innovation, including bigger and more frequent Powerball jackpots.

“Gaming services performed to plan and is making good progress on venue sign-ups and contract extensions.”

Attenborough also made reference to the integration programme with Tatts, saying this initiative is progressing well and that the company has upgraded its synergy targets as a result.

“We delivered AUS$24m of EBITDA from synergies and business improvements in 1H19 and are set to deliver AUS$55m in FY19, up from our previous target of AUS$50m,” he said.

In addition, Attenborough said the introduction of point of consumption taxes in four jurisdictions across Australia this year, as well as a ban on synthetic lottery products coming into effect, will help to create a more sustainable gambling environment that will benefit Tabcorp and its customers.

“Tabcorp is well positioned for 2019 and beyond,” he said.