The demerger of the Lotteries & Keno business from Tabcorp in May has given Tabcorp an opportunity to rethink its strategy. The Board is refreshed, and some new faces have joined the executive team to execute the new plan which focuses heavily on digital and media as growth catalysts.
TAH’s new Board and Management has been strengthened. Assuming the role of chairman this month is Bruce Akhurst who has been on the Board since 2017. The Board has added an interesting appointment in Karen Stocks whose background at Twitter, Google and Vodafone (all in Australia) will bring new thinking about the digital approach to growing TAH’s business. TAH has also added a new position of Chief Customer Officer, filled by Jenni Barnett, a former Telstra and CBA executive with digital experience.
Technology is becoming increasingly important. The launch of a new app in FY23f is indicative of the focus of TAH’s thinking on how to grow its wagering business. This will go hand in hand with a more efficient marketing effort to promote the products and services that will hopefully attract and retain more customers.
Capex will lift to $150 million in FY23f. Up to half of this amount will be for growth and transition of the business, with a further 10-25% aimed at risk and sustainability. The latter has become much more sensitive given the exposure of the Australian casino industry’s corporate recalcitrance. TAH’s history is not perfect in this regard so the tightening of its own corporate behaviour is fully warranted.
The regulatory imbalance is beginning to level out. The recent changes to Queensland’s wagering taxes and fees has been mirrored by the NSW Government. From 1 July 2022, the Point of Consumption Tax (POCT) has been increased from 10% to 15% in NSW which is an important step towards levelling the playing field between the NTbased online bookies and TAH.
TAH will tighten its cost belt. A new program has been hatched to contain cost inflation to 3-4% pa in FY23f.
Investment view
TAH has sprung out of the post-demerger gate with some vigour and, arguably, plenty of track in which to set its own pace of growth. The new strategy makes sense in that new customers are more likely to be casual or social gamblers looking for entertainment. But this must be made easy and convenient so that the experience is enjoyable and repeated. The underlying tools of horse racing and media coverage have not changed significantly, but the way that TAH brings it to a broader audience must evolve. TAH sees its business as entertainment through social gambling.
The re-opening of TAH’s retail outlets post-pandemic is showing the importance of retail as a supplement to digital, and a point of differentiation to the online competitors.
We will look to the up-coming Spring Racing Carnival for evidence of how TAH is executing on its new strategy.
We expect TAH to renew its Victorian wagering licence for another 12 years or more, post 2024. The WA TAB licence is also in the foreground, and this could be a potential for a re-rate if TAH could secure the licence.
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, but we recognise there is potential for valuation upside.
