The company is divided into four main segments: Wagering, which includes totalisator and fixed odds betting; Media & International, including Sky Racing and Sky Sports Radio; Gaming, which includes a variety of Tabaret venues across Victoria; and Keno, which mostly operates in NSW and QLD clubs and hotels.
Back in June 2011, TAH successfully completed the demerger of its Casino business into the Echo Entertainment Group.
Promotional spend hurts margins
TAH’s FY12 core net profit rose 12.7% to $340 million. Revenue was up 3.1% as growth in Fixed Odds offset declines in totaliser revenues. Wagering costs climbed as TAH invested in technology and expanded its promotion and sponsorship activities.
This meant EBITDA margin fell sharply from 37.6% in FY11 to 23.2% in FY12.
The concerning aspect of the promotional activities expense was that TAH felt the need to boost its profile from increased competition. The explosion in online betting over the past few years has intensified competition in the wagering industry.
TAH has recognised this change and part of the reason behind its FY12 margin contraction was the amount of money it is being forced to spend on technology upgrades at its Trackside, Fixed Odds and self-service terminals.
Highlighting the competitive threat, Bet365, UNiTAB and Tom Waterhouse Betting have begun making their presence known in the past six months by ramping up advertising.
To boost its own profile, TAH needs to increase technological and advertising spending, which is going to be detrimental to margins in the short-term.
Unfortunately for TAH, FY13 has got off to a shaky start. 1Q13 wagering revenue fell 2.4% on-year, with the result hurt by the changes to the Victorian Wagering and Betting Licence terms.
TAH was awarded a 12 year wagering and betting license by the Victorian government in July 2011 for $410 million. A tough trading environment in the Victorian and club network contributed to the fall in wagering revenue.
In our view a continuation of the weak trading conditions will limit revenue growth in FY13, putting further pressure on already strained profit margins.
This article was distributed to our members on November 13th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only Tabcorp but all our current trading ideas. Simply click here and starting trading today.