Tabcorp (TAH) Share Trading Recommendation

Submitted by Craig Strzelecki on 15 February, 2007 - 19:49

Tabcorp (TAH) have a Neutral 2 share trading recommendation and an unchanged price target of $16.80 from analyst UBS. UBS forecast H1 07 NPAT $279.7m, down 1.3% on the $283.2m reported in the pcp. They forecast a 45c/share dividend [44c/share in the pcp]. Given management gave guidance for a 1H result "pretty much in-line with the pcp" at the AGM close to the end of the half, we do not expect the result will vary from this guidance to any large degree. With cap management a key theme this reporting season, the analyst believe that there are various options available in this result. With $114m of excess franking credits, they believe TAH could announce a $350m off-market buyback, which we calculate will be 1.5-2.5% EPS accretive. Alternatively there is the potential for a special ff div of 50.5cps, which would take FY07 div yield to ~8%. Whilst they believe any cap management initiatives will be taken well by the market, TAH continues to face numerous headwinds. We are particularly mindful of the upcoming newsflow around the Star City exclusivity (expires Sept 07). The analyst's valuation and price target are DCF-based, using a WACC of 9.0% and assumes renewal of the VIC gaming and wagering licence which adds 50cps. Whilst one cannot ignore the high quality assets owned and operated by TAH (not only strong market position, but also the strong cash generation), trading on an adjusted FY08E EV/EBITDA of 11.2x, they believe the stock is fully-priced at current levels.

Tabcorp Holdings Limited is listed on the Australian Stock Exchange (ASX) under stock code TAH. You can view their investor website here. TAH was listed on the ASX on 15 August, 1994. Tabcorp is involved in the provision of gambling and other entertainment services. The company owns the Star City Hotel and Casino in Sydney and the three Jupiters Hotels and Casino properties in Brisbane, Gold Coast and Townsville. The company also has wagering, gaming and related media operations. Elmer Funke Kupper is the CEO of Tabcorp and Michael Robinson is the Non Executive Chairman. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade TAH. Check your charts and good luck with your share trading!

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