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All eyes on Tabcorp now

Gaming business Tabcorp (ASX: TAH) has just released its third-quarter trading update, with analysts and investors busily eyeing the results and reviewing their forecast for the full year.

The trading result breaks down the quarterly revenues for each division but does not provide earnings numbers. Given the statistical nature of gambling returns, reasonably sound assumptions can be made on the back of the revenue numbers.

The release showed revenues for the third quarter were up 2.6% on the prior corresponding period (pcp), while revenues for the three quarters year-to-date were up slightly less at 2.2%. The newly established Gaming Services division continues to show healthy progress and the Fixed Odds and Luxbet segments of Wagering were both a highlight with strong revenue growth.

The Keno segment also grew revenues, benefiting from the addition of the Victorian Keno operation. During the quarter Tabcorp signed an extension with the Queensland Government for its license to operate Keno in the state until 2047. Given Keno now contributes 16% of Group earnings before interest, tax, depreciation & amortisation it is definitely good to see Tabcorp retaining and extending the Queensland license.

With the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) up 17.5% in the last 12 months, gaming stocks have proved a great place to invest. Not only has Tabcorp outperformed with a 19% return but also fellow lotteries business Tatts Group (ASX: TTS) has risen an impressive 28% and online lottery retailer Jumbo Interactive (ASX: JIN) has surged a staggering 72%. Interestingly the third-quarter results showed Tabcorp’s digital turnover increased by 16% on the pcp, it will be interesting to see if Jumbo has similar levels of growth too.

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Source: Google Finance

Foolish takeaway

Australians are well known for “enjoying a punt”. While some investors prefer not to invest in gaming stocks for ethical reasons, for those investors comfortable owning these stocks, there are a number of listed businesses that offer exposure to a sector which has both defensive characteristics and reasonable growth potential.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Tim McArthur does not own shares in any of the companies mentioned in this article.

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