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Tabcorp Ltd FY20 Results – Weak Result Heavily Impacted By COVID-19

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Tabcorp Ltd (ASX: TAH) is an Australian diversified gambling entertainment group. Tabcorp owns brands that include the Lott, Keno, TAB, Sky Racing and MAX. Tabcorp has a market capitalisation of A$7.4 billion.


What are the key features of the FY20 result for CSL?

Tabcorp reported that group revenue for FY20 is $5,224 million, down 4.8% from FY19. Earnings before interest and tax (before significant items) is $995 million, down 11.5% from FY19. Net profit after tax (before significant items) for FY20 is $271 million, down 31.6% from FY19. Tabcorp will not pay a final dividend.

Tabcorp also announced today an underwritten pro-rata accelerated renounceable entitlement offer with retail trading rights to raise approximately $600 million in new equity. This equity will be used to pay down existing drawn bank debt facilities and support the move towards the revised target gearing range of 2.5 – 3.0x Gross Debt / EBITDA.

Regarding Tabcorp’s business units, Lotteries and KENO revenue for FY20 is $2,917 million, up 1% from FY19. This performance was achieved despite cycling 49 OzLotto and Powerball jackpots of $15 million or more in FY19 versus 39 in FY20. The Lotteries result reflects the recent investment Tabcorp has made in digital and retail channels and evolution of Tabcorp’s game portfolio. An extra 400,000 Australians became active registered Lotteries players during FY20, taking the total to 3.7 million.

Wagering and Media revenues is $2,084 million, down 10% from FY19. Wagering and Media business was heavily impacted by COVID-19 enforced closures and restrictions on retail operations across all states and territories.

Gaming services revenue in FY20 is $221 million down 27.3% from FY19. Gaming services, similar to Wagering and Media, suffered from temporary closures of venues from 23 March 2020, which re-opened in June. Gaming services revenues were also impacted in the first half by contract expirations, contract extensions at lower daily rates, reduced project work and the non-renewal of a Telstra service contract.

Although Tabcorp did not pay a final dividend in FY20, the company has aimed to have a future pay-out ratio in the target of 70% - 80% of net profit after tax (before significant items).

What is the outlook for Tabcorp?

The outlook for Tabcorp is uncertain. The risk of COVID-19 second waves like currently in Victoria could have severe impacts for Tabcorp’s operations if there are continued forced closures of their operations. That said, Tabcorp’s management has noted that the company is focused in FY21 on capturing value from the digital opportunity across Lotteries, KENO and Wagering. This strategy of focusing on digital opportunities is a welcome one, especially if there is not a vaccine for COVID-19 in the short to medium-term.

What is the market reaction to the FY20 result?

The market reaction to Tabcorp’s FY20 result is neutral. Tabcorp share price is currently $3.67.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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