Bunched at the turn
1H23 RESULT
Need To Know
- In-line result with EBITDA $197m +24% on pcp
- Targeting 30% digital by FY25
- Interim dividend 1.3cps, payment 21 March
Tabcorp’s in-line result was flattered by the weak COVID period last year and some new competition (Betr). The pivot towards digital growth will take time, money and execution.
Result. Wagering and Media EBITDA increased 4.0% to $154.4m on revenue increase of 8.6%. Wagering turnover recovered strongly from COVID impacts last year posting a 65% lift. TAB digital revenue market share was 25.1% and total wagering market share was 34.8%.
TAH is targeting a reduction in operating costs to $600-620m (currently ~$640m) in FY25f as part of its transformation program.
The tax reform in Queensland has brought all businesses into line so that TAH is now on a level playing field with the online wagering operators. The same has happened in Tasmania and the ACT.
Investment View
TAH’s new TAB25 strategy aims to reach 30% digital revenue by FY25. CEO Adam Rytenskild launched TAH’s new app back in October last year with a heavy emphasis on growing digital market share. TAH has nearly 800k active digital customers. A target of just 30% in two years’ time (from 25% now) suggests to us that it will be a slow transition and that traditional business is quite glued on for many customers. The digital aspect is really aimed at a younger and new audience which will require innovation and marketing.
TAB25 also aims to double the return on invested capital to 10% in FY25. This highlights the fairly weak returns being generated currently.
The wagering industry is highly competitive and has attracted several new online competitors. Among them, Betr apparently lost ~$100m in the December quarter indicating how much ammunition competitors are bringing to the industry. The company notes the increased government and community expectations are raising the cost of doing business. Scale is therefore also becoming more important to sustain the business. TAH is keen to nudge the government into tighter regulations on gambling advertising as this would likely pressure its competitors more than TAH itself, apart from being a good thing to do.
There was nothing in this result to lure us away from a Hold recommendation.
Stock Overview
Share Price
Company Overview
Tabcorp’s business is Wagering & Media and Gaming Services.
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