Tabcorp still a comfortable bet

After flirting with a price under $3.00 on Monday, Tabcorp (ASX: TAH) opened stronger Tuesday and then handsomely outperformed the market by the close of trade. With the S&P/ASX All Ordinaries Index (Index: ^AXAO) (ASX: XAO) up almost 1.3% mid-session, Tabcorp was going along quite nicely at more than double that. As the market continued rebounding on news of the Reserve Bank decision to keep rates on hold, Tabcorp added 5%.

The greater premium was helped by its reported $863,000 purchase of Tab Active, the television wagering service of small-cap casino operator Donaco International (ASX: DNA). Linked to the Sky racing channels through Foxtel TV subscription, it gives punters the option of being able to place bets from their armchair using their remote control.

Operating for five years, the system links into the betting engines of Tabcorp, TattsBet, and Racing and Wagering Western Australia (RWWA), allowing TAB customers to place bets using their Foxtel subscription in all states except Tasmania. Tattsbet is the wagering division of Tabcorp’s rival Tatts Group (ASX: TTS), which with a lottery business as well as wagering has almost doubled Tabcorp’s $2.2 billion market capitalisation. RWWA is the Western Australian government-owned betting operator.

The acquisition is not expected to have an impact on the service’s current operation, which is not used as much by TAB punters as other forms of online betting like the internet or smartphone apps. But the purchase still shows Tabcorp’s enthusiasm to strengthen its hold on betting in all its forms. There’s a chance that if Tatts continues to branch out more into its lottery business, Tabcorp might pick up gambling assets it puts up for sale.

Tuesday’s slight recovery was good news for patient investors who saw their investment plummet from its most recent peak of $3.42 in late February, the best price it had seen since hitting a rock bottom of $2.05 in the market crash of 2008. Tabcorp rebuilt its price steadily until late May, when it fell away again with the overall market. It’s been trading in a $3.10-$3.20 range since, and marginally outperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).

Tabcorp is of course one of the Australian market’s great defensive and most recession-proof stocks. People will gamble no matter how dire the overall economy or sometimes even their personal circumstances become. Obviously, it’s not a prospect for investors concerned with the ethics of that. But it does have dividend stability and a 6.2% dividend yield.

Foolish takeaway

This latest purchase is not a reason in itself to buy Tabcorp, but its should be considered as part of the portfolio of anyone looking for a stable and reliable return. In that sense, the odds are in your favour.

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Motley Fool contributor Andrew Ballard owns shares in TAH and TTS. 

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