Tabcorp Holdings Limited (ASX: TAH) has announced a huge upswing in net profit on the back of their strong performing lotteries division.
Tabcorp Holdings is Australia’s leading diversified gambling entertainment group, employing more than 5000 people. It is the largest provider of lotteries, Keno, wagering and gaming products and services in Australia.
Tabcorp Hits The Jackpot With Lotteries
Tabcorp posted a statutory net profit after tax (NPAT) of $362.5 million up from just $28.7 million last financial year. Underlying earnings were up 42% to $397.6 million, which was more or less in line with analyst forecasts. Total revenue for the company was 8.7% higher at $5.5 billion.
The lotteries division was a standout performer with revenues up 22.8% to $2.86 billion and EBITDA up 28.9% to $509 million based on FY18 pro-forma earnings.
The strong performance in the lotteries division was driven by bigger and more frequent Powerball jackpots. Active registered players were up 22.2% to 3.3 million which has also positively impacted revenues for other games.
However, competitive pressures continue to weigh heavily on the wagering and media division with revenues falling 3.6% to $2.31 billion and EBITA down 7.9% to $416 million.
Strong competition from corporate bookmakers has lead to a much greater cost to not only acquire new customers but simply to keep existing customers engaged.
Tabcorp is in the process of integrating its TAB business in Victoria and New South Wales with the totalisator operations in Queensland, South Australia and the Northern Territory which it acquired via its $11 billion merger with Tatts Group
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Dividend
Tabcorp announced a final dividend of 11 cents which brings the full year dividend to 22 cents per share fully franked. This is a 4.8% increase on FY18 and places Tabcorp shares on a fully franked dividend yield of 5%.
Management Comments
Commenting on the result, Tabcorp CEO David Attenborough said: “The first full year of the Tabcorp-Tatts combination has delivered strong revenue and earnings growth. Integration is on track, with most activities to be completed by the end of FY20.”
“Through the Tabcorp-Tatts combination we have created a strong and diversified portfolio of high quality businesses across Lotteries and Keno, Wagering and Media and Gaming Services. Our businesses have a clear set of priorities to build on their competitive advantages and drive long-term profitable growth.”
Should You Take A Punt On Tabcorp?
The company did not provide any formal profit guidance for the coming 12 months but I expect the Lotteries division to continue its strong growth.
However, I believe the Wagering and Media division is likely to remain under significant pressure due to a fiercely competitive landscape.
Whilst Tabcorp is far from the worst investment you could make, I think there are better opportunities out there. For some ideas, grab a free copy of our report below.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
