Tabcorp Holdings (TAH) News Update

Submitted by Jim Thesiger on 21 May, 2008 - 16:36

Tabcorp Holdings (TAH) has a price target of $12.95 from Australian stockmarket analyst Macquarie Research Equities.

Tabcorp Holdings (TAH) After the storm ... and a NT bookmaker licence

Tabcorp looking to enter NT bookmaking business:

TAH has lodged an application with the NT govt for a corporate bookmaking licence. Whilst we do not believe this move in isolation will have any significant s/t earnings impact and see it as a move to protect their current tote opps, we note it could be a precursor to further acquisitions given TAH's aim of achieving scale.

UBS view: rationale and risks:

Benefits include: 1) shakes-up conditions for existing wagering opps; 2) associated benefit for underlying totes via bet-backs; 3) insurance policy against loss of VIC wagering licence; 4) increases pressure in VIC wagering renewal; and 5) TAH has a competitive advantage in risk management (although we would note they also have a cost disadvantage via profit share). There are risks evident however, including: 1) requirement for additional scale could mean further investments; 2) government responses in home states; and 3) dilutes quality of TAH wagering

Strong underlying licences remain:

We resume coverage after placing it under review following the VIC govt industry structure announcement. We note the licence risk around the remaining assets are limited given long expiration dates, with TAH a conglomerate of good businesses, with defensive earnings profiles and strong cashflows. Offering over ~8% ff yield although we would note some risk to this given accg treatment of entitlement.

Valuation: $12.95 based on SOTP

Valn assumes run-off for VIC gaming and wagering, and receipt of the entitlement.