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Tabcorp Holdings: Dividend of almost 9% might make it worth a flutter

Tabcorp Holdings Limited (ASX: TAH) today reported its first half 2012 results. In June 2011, Tabcorp demerged its casinos business into a new entity Echo Entertainment Group Ltd (ASX: EGP), and kept its remaining wagering and gaming businesses.

Net profit after tax for continuing operations was $189.3m, up 14% compared to the prior corresponding period. Revenues were up 2.8%, and earnings per share were up 3.5% to 26.9 cents.

Tabcorp announced a 13 cent fully franked dividend for the first half and expected revenue and earnings trends to continue in the second half of 2012.

About Tabcorp the company

Tabcorp is engaged in the provision of entertainment (aka gambling) services. The company operates four main business groups.

  • Wagering, which is engaged in totalisator and fixed odds betting activities
  • Victorian Gaming, which is engaged in electronic gaming machine operations in licenced clubs and hotels within Victoria
  • Media and International, which is engaged in national and international broadcasting of racing and sporting events, and
  • Keno, which includes Keno operations in licenced clubs and hotels within Victoria, New South Wales and Queensland.

So What: Tabcorp was awarded a 10 year licence to provide Keno operations in Victoria starting in April 2012, and was also awarded a new 12-year Victoria Wagering and Betting Licence in December 2011, commencing in August 2012. The costs of these licences were $60m and $410m respectively.

These licences should ensure that Tabcorp will continue to generate continuing streams of revenue over the next 10-12 years, from at least two of its four divisions. Tabcorp have signed up more than 500 venues so far for Keno operations in Victoria and could roll out Keno to 1,000 venues.

Think of Tabcorp as a utility company with a firm handhold on the Australian gambling pipeline (at least in NSW, Queensland and Victoria), with practically guaranteed revenues over the next 10-12 years, unless management do something completely mad, or Australians suddenly change their gambling habits. (I wouldn’t bet on that!)

Now what: Based on first half results, Tabcorp is trading on an undemanding forecast P/E of 5.4 and dividend yield of 8.8% fully franked. On those numbers, it certainly deserves a closer look.

The market certainly likes the result with the share price up by more than 3% so far today.

NOTE: Tabcorp has decided to underwrite its Dividend Reinvestment Plan (DRP) plan up to 50%, so investors need to understand that their shareholdings will be diluted by the issue of new shares and therefore the P/E and dividend yield will be slightly negatively affected.

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Motley Fool contributor Mike King does not own shares in Tabcorp or Echo Entertainment. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy

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