The Tabcorp Holdings Limited (ASX: TAH) share price is rising today after confirming its intention to demerge the company by June 30.
Tabcorp share buoyed my demerger
Currently, the Tabcorp share price is up 4.85% to $5.40.
Key financial results for the half ending 31 December include:
- Group revenue of $2.9 billion, up 2.2% year-on-year (YoY)
- Group EBITDA of $529 million, down 5.5% YoY
- Interim dividend of 6.5 cents per share, down 13.3%
Today’s results illustrate the rationale behind splitting the company in two.
Here’s why Tabcorp (ASX: TAH) is splitting in two
One segment is knocking it out of the park despite being held back by poorer performing divisions.
Lotteries & Keno
The Lotteries and Keno division was the standout performer, increasing sales 10.9% over the half.
Digital sales – which are higher margin as its cuts out the local newsagent – were up 28%. Active registered users increased 5% to $3.88 million.
With costs largely unmoved, more profit dropped to the bottom line resulting in a 15.1% increase to EBITDA.
The performance of Lotteries likely pushed the Tabcorp share price higher today.
Investors are now able to see more clearly the potential for the division as a standalone business.
Wagering & Media
Unfortunately, the performance of Lotteries was offset by the Wagering division.
Revenue fell 9.8% as pandemic restrictions reduced TAB venue sales.
Given the fixed cost nature of running TAB’s such as rent and paying staff, earnings fell 34.8%.
Tabcorp will invest in a new TAB app to knock Sportsbet off its perch as the number one choice for digital wagering.
But competition remains fierce, resulting in higher advertising further eroding earnings:
“The heightened competition for customer acquisition in a largely digital market drove increased customer generosities, advertising and promotions, which reduced margins”
Gaming Services
The smaller Gaming Services division performed admirably given venue closures, with earnings falling just 4.5%.
What next for the Tabcorp share price?
Shareholders will have the opportunity to vote on the demerger in May. Pending all regulatory and shareholder approvals, the business will split as of June 30.
“We are enthusiastic about this opportunity to create two significant, cash generative businesses with exciting futures”
I’m personally bullish on the Tabcorp share price in the near term.
The demerger will unlock significant value for shareholders with Lotteries as a stand-alone entity.
It will also enable Wagering to invest back into itself and remove most of the current $2.2 billion debt burden.
If you’re looking for more share ideas, check out 22 ASX shares I’m excited about in 2022.
