The COVID-19 disruption ruined FY22 for Tabcorp so it is best left to history. The new financial year has sprung into life, post the demerger of Lotteries, and with a new CEO in the saddle.
For the record, TAH’s FY22 EBITDA of $361 million was down 22% on the prior year and in line with consensus. Wagering & Media slightly underperformed but Gaming Services made up for it with a 6.4% increase in earnings.
TAH declared a fully franked final dividend of 6.5cps that reflected five months ownership of Lotteries and Keno, as flagged in the demerger documents. The demerger happened early May 2022.
TAH said July group revenue increased 14.6% with Wagering & Media revenue up 11.2% indicating a bright start to FY23f.
New CEO Adam Rytenskild is chomping at the bit to accelerate the digital side of the business. A new TAB app will launch in September just in time for the Spring Racing Carnival which will enjoy having all the TABs open this year, unfettered by COVID-19 restrictions. Two new wagering products will be launched around December.
The cost base is in for some restructuring with a new efficiency program. The company expects 3-4% cost growth in FY23f with the benefits skewed to 2H23f. It is possible that most of the already flagged Queensland tax savings of approximately $30 million pa, effective from 2H23f, will be reinvested into customer retention and growth initiatives (generosities, marketing and tech/product).
Bids have been submitted for the WA TAB license and we expect a decision by the end of CY22. TAH is not assured of winning the licence by any means with two other valid bidders in the hunt. The WA TAB would certainly be highly transformational to TAH’s earnings but could require an equity raising.
Investment view
TAH’s history is full of twists and turns. Its current version is now dominated by wagering and media, with Gaming Services still meaningful but not the piece that moves the share price. The balance sheet is presently undergeared at 0.5x (excluding lease liabilities) but there are several upcoming payments that will nudge this up slightly.
Capex of $150 million in FY23f is in line with previous guidance.
The new ‘hero metric’ for TAH is digital market share, and that opens up plenty of new avenues for the company to break free from the traditional TAB/wagering nexus. But it is a very competitive market and TAH will have to fight hard for the customer’s dollar.
Risks to investment view
The wagering industry is regulated, licenced, and taxed at a State Government level. There is a reasonable amount of risk associated with changes to each of these factors and historically, change has been frequent. Changes in consumer preferences in gambling and the general level of participation may change over time. The horse racing industry can also be subject to biological risks such as the Equine Influenza outbreak in 2007.
Recommendation
We have retained our Hold recommendation.
Figure 1: FY22 result
