Tabcorp (TAH)

Has the Tabcorp horse already bolted?
Big picture Karen Maley
846 words
1 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Investors pricked up their ears this week on reports Ellerston Capital, the investment vehicle 25 per cent owned by the Packer family, has amassed a 5 per cent stake in gambling giant Tabcorp Holdings.

A substantial shareholding notice lodged with the Australian Securities Exchange showed Ellerston has been building a stake in Tabcorp since June 2014, and now controls 38.8 million shares worth about $156 million.

However, analysts quickly dismissed suggestions Packer could be planning a takeover, pointing out Tabcorp's constitution prevents any individual from controlling more than 10 per cent of its voting power.

They believe it's more likely he's formed the view the Tabcorp share price didn't reflect the company's earning potential.

But the big question for investors is if it's too late to follow Packer's lead in stocking up on the company.

Tabcorp's share price has jumped in recent weeks after the company announced a hefty 6.6 per cent lift in first-quarter revenues, helped by heavy betting on the final stages of the 2014 FIFA World Cup.

In the three months to September 30, Tabcorp reported a 6.6 per cent rise in revenue to $537.4 million, compared with the same period last year. The wagering division reported the strongest revenue growth, rising 8 per cent to $415.9 million.

The company said betting revenue from its totalisator pools in Victoria ($142.6 million) and NSW ($159.0 million) fell 2.9 per cent and 3.2 per cent respectively. But revenue from fixed-odds products surged 32.1 per cent to $162.2 million.Exposure

In a research note after the results, Deutsche Bank analysts said Tabcorp's first-quarter trading update was "positive". "Tabcorp continues to benefit from strong growth in fixed-odds revenue (up 32 per cent), digital turnover (up 21 per cent) and improving yields (up 60 basis points to 16.7 per cent), as well as an easing in the rate of decline in both tote revenue (down 3 per cent) and retail turnover (down 0.9 per cent)."

But they warn the company still faces some risks relating to "changes in household disposable income, changes to taxes or levies and changes to the structure of the wagering industry".

Deutsche Bank valued Tabcorp shares at $3.90 (when the note was written, the share price was $3.61).

"We believe Tabcorp is executing well in a competitive environment and we are forecasting compound annual EPS [earnings per share] growth of 11 per cent over the next three years."

However, UBS analysts, sound a note of caution. Although they agree Tabcorp has made a "solid start" to the year, they note "the upcoming Spring Racing Carnival will be a critical period". What's more, "we remain cautious on Tabcorp's wagering earnings given the potential risks around the prospect of further hikes to race field fees".

UBS analysts value Tabcorp shares at $3.10, and say the company is trading at a premium to their valuation and to the market, "despite the risks inherent in Tabcorp's wagering licences (eg. risk of potential race [hikes in] field [and] industry fees." They have a "sell" rating.Differing opinions

In contrast, Credit Suisse analysts have an "outperform" rating, and have set a new target price of $4.50.

In a research note release released after the first-quarter results, Credit Suisse analysts say Tabcorp is seeing wagering momentum accelerate as the company "reaps the benefit from investment in digital and fixed odds".

They cite the company making betting markets on 25,000 sporting events as compared to 5000 last year.

What's more, Tabcorp is growing yields to manage rising race-field fees. "Race-field fees may increase modestly over time. However, any future changes are likely to have a larger relative impact on corporate bookmaking competitors," they add.

In a separate research note on the Australian gaming market released this week, Credit Suisse analysts say wagering industry growth "is being stimulated by smartphone technology led by the European corporate bookmakers".

Australians are betting more and moving away from traditional forms of gambling.

"Easy access to mobile is resulting in Australian punters betting more frequently, and in smaller sizes which is enhancing yields."Hot spots

Corporate bookmakers such as Paddy Power (which owns Sportsbet) and William Hill (which owns the Tom Waterhouse brand) have strong exposures to the "hot spots" of the market – mobile, fixed odds, and sports betting. But the research note says "traditional TAB operators – Tabcorp in particular – have also returned strong growth recently".

In addition, it's noted Tabcorp retains a very strong brand position.

"The TAB brand has significant retail value and Tabcorp has successfully converted this brand strength into its online offering."

Interestingly, the regulatory outlook favours TAB operators such as Tabcorp.

"Australian racing industries have recently shown a willingness to devise new fee arrangements that selectively tax corporate bookmaker products and favour incumbent TAB operators," the Credit Suisse research note adds.


Fairfax Media Management Pty Limited

Document AFNR000020141031eab10003w

Kelong???

Death and injury at the Melbourne Cup
PUBLISHED: 4 HOURS 17 MINUTES AGO | UPDATE: 1 HOUR 17 MINUTES AGO

Death and injury at the Melbourne Cup
Zac Purton and Admire Rakti leave the track after finishing last during the Emirates Melbourne Cup. Photo: Getty Images
JOHN STENSHOLT

The Melbourne Cup has taken a tragic turn with the death of race favourite Admire Rakti and a freak injury which led to the death of another horse overshadowing a ­dazzling winning run by Protectionist, the first German stayer to win the $6.2 million race.

Protectionist romped home to beat Red Cadeaux and Who Shot Thebarman, though after the race all talk was of the shock death of Admire Rakti’s and a severe injury to Araldo which led him to being put down later.

After the great and the good packed into the hospitality tents in humid 30-degree heat at Flemington, the race set off at an extremely fast pace that seemed to take a toll on many of the field. Pre-race favourite Admire Rakti dropped back after running on the pace early and eventually finished last.

It died after collapsing back at the stalls just five minutes after the Cup ended, suffering what was understood to be a heart attack or internal haemorrhage. Admire Rakti’s jockey Zac Purton said he sensed something was wrong with the horse halfway down the straight and had slowed him down, while Racing Victoria head vet Brian Stewart said, “The exact cause of death is yet to be determined, although the circumstances of the horse’s passing are very rare.”

The incident that caused Araldo’s death could only happen on Melbourne Cup day. A racegoer waving a flag spooked Araldo, which spun around and lashed out. He got his leg caught in the fence before he kicked himself free and in the process broke his leg.

Vets were hoping to insert screws in the leg and the horse’s owners were hoping it would make a full recovery but were unsure if it would. That was not successful, and he was killed once it was realised that nothing could be done for the horse.

Protectionist won the race in the fastest time since 2002. Trainer Andreas Wohler said the win was the biggest in his career. “This is unbelievable, it won’t be until later until you think about it. It’s a moment you don’t forget in your life. It’s a big achievement from the whole team. It was a long range plan.”

Wohler also praised jockey Ryan Moore’s patience. “When he came around the last bend, he just needed to have the right gap and he found it and he quickened.”

Part-owner Robert Power, a projects manager at the family civil engineering firm Dunmain in Sydney, said Moore had ridden an excellent race before paying tribute to the winning horse.

“My brother looked at this horse in Germany for its last race over there and he said it was the most fantastic animal he has ever seen,” Power said after the race. “He was right.”

The Power family, among the several owners of Protectionist, hail from Wexford in Ireland and own Dunmain. It undertakes light rail, trenching and other construction work.

Protectionist’s owners took home $3.6 million for winning the race, more than 10 times the horse’s total prize money in nine previous starts.

Red Cadeaux won $1.08 million for placing second, the third time in the past four years it has done so. “What’s he won now, $2.7 million from finishing second, Red Cadeaux’s trainer Ed Dunlop said He’s a horse that looks after himself and he isn’t flamboyant. A nine-year-old horse needs a lot of maintenance. For a horse to do what he has just is mind-boggling.”

Dunlop did not rule out running Red Cadeaux for a fifth time as a 10-year-old next year, while the horse was honoured in the Victoria Racing Club committee room pre-race. “No international horse has ever travelled here four years in a row and run second three times. It was a marvellous run so we honoured him today,” said VRC vice-president Amanda Elliott.

A crowd of 100,794 attended Flemington, down from 104,169 a year ago. The nation’s biggest wagering providers, Tabcorp, Tatts Group and Sportsbet, took $166 million on the race.

Tabcorp ssaid its revenue of $25 million from the $132 million wagered on the day’s 10 races was up 12.4 per cent from last year.

with Jessica Gardner

The Australian Financial Review

BY JOHN STENSHOLT

Anything that goes with betting will always be controlled by the "Godfather". If not how to open more casinos.

GG, Tabcorp also got S44 tax credit type of exercise??

Tabcorp's franking good idea
February 5, 2015 - 1:21PM
Malcolm Maiden


Tabcorp has a nice little capital management problem.
Tabcorp gives out special dividend as profit rises 64pc

Tabcorp Holdings shares have risen by 40 per cent to a post-2011 casino demerger high of $4.71 since the middle of last year, and the clever dividend franking distribution the group announced along with a 22 per cent higher interim profit on Thursday doesn't hurt their chances of doing even better.

Tabcorp's pleasant capital management problem is that it has about $400 million of undistributed franking credits sitting on its books.

The company's response, devised by long-time adviser UBS, is to distribute about $100 million of credits to shareholders via a special dividend of 30¢ a share, and to simultaneously announce a one-for-12 fully renounceable share issue priced at $3.70 a share, which is a $1.01 or 21 per cent discount to Tabcorp's share price and a 13.1 per cent discount to the theoretical ex-rights price of the shares.

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The special dividend sends $230 million out to shareholders. The share issue pulls $236 million back in, so Tabcorp's gearing and investment grade rating are not affected.

Tabcorp's Australian-based shareholders meanwhile receive new shares at a discount, and get to divvy up the $100 million of franking credits that come with the special dividend and an interim dividend that has been lifted from 8¢ a share to 10¢ a share.

About 75 per cent of Tabcorp's share register is Australian and able to use the franking credits, and they are most valuable in the hands of local superannuation funds including self-managed funds.

Funds in the accumulation phase pay 15 per cent tax, and can expect a 15 per cent tax refund from their franking credits. Those in the drawdown phase pay no tax, and can expect a 30 per cent refund.

Note that Tabcorp has $400 million of credits, and is only distributing a quarter of them. The company says other capital management initiatives are being considered.



Read more: http://www.smh.com.au/business/comment-a...z3QrqJ6Ll4

Australia still has a Franking system similar to the S44 credit in Singapore

http://www.investors.asn.au/education/sh...g-credits/

But I think it is of no use to Foreign Investors such us ourselves

(05-02-2015, 09:52 PM)EnSabahNur Wrote: Australia still has a Franking system similar to the S44 credit in Singapore

http://www.investors.asn.au/education/sh...g-credits/

But I think it is of no use to Foreign Investors such us ourselves

Useful to someone living in OZ with no or low tax bracket.

Tabcorp still has $300m tax credit left after this exercise.

(05-02-2015, 10:00 PM)opmi Wrote:

(05-02-2015, 09:52 PM)EnSabahNur Wrote: Australia still has a Franking system similar to the S44 credit in Singapore

http://www.investors.asn.au/education/sh...g-credits/

But I think it is of no use to Foreign Investors such us ourselves

Useful to someone living in OZ with no or low tax bracket.

Tabcorp still has $300m tax credit left after this exercise.

Australia from my understanding has a highly complicated tax system for both individuals and companies.

Interest income and capital gains/losses are included in individual tax calculation and its on a global tax basis.

For companies, I think it is even more complicated and hence the implication for shareholders are worst. While there remains franking, some highly profitable companies like Sydney Airport doesn't even pay a single cent of tax due to the Macquarie Bank financial engineering of structuring the corporate structure for the airport (and hence no franking for shareholders).

On how the holders will benefit from franking credits, the impact seriously differs.
In this instance, TAH holders will involuntarily be benefited with franking credits with no real cashflow benefits unless they are in the low tax bracket. In fact for some - due to the special dividends, they may even lose some of their social benefit entitlement as a result of "one-off" income with no real cash benefit unless they renounce their rights and dilute their holdings.

GG

^^ Thanks GG. Probably their tax sheltered superannunation funds can benefit. As per article.

"About 75 per cent of Tabcorp's share register is Australian and able to use the franking credits, and they are most valuable in the hands of local superannuation funds including self-managed funds.

Funds in the accumulation phase pay 15 per cent tax, and can expect a 15 per cent tax refund from their franking credits. Those in the drawdown phase pay no tax, and can expect a 30 per cent refund."