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Tough year for Tabcorp

It’s likely shareholders in Tabcorp Holdings (ASX: TAH) will be feeling a little battered and bruised after reading the gaming giant’s full-year financial results. There were certainly a number of positives in the results including a strong performance from continuing businesses, however, the positives were countered by the loss of the Victorian Tabaret business and the shift to the new 50/50 Victorian Wagering Joint Venture from a previous 75/25 split.

The good and bad

Growth across the continuing business units saw Wagering revenue up 5.9%, Media and International revenue up 9.1% and Keno revenue up 12.2%. The new Gaming Services (TGS) division also had a pleasing start, capturing $86 million in revenues during its first 10 months of operation. Net profit after tax from continuing operations before significant items was $139.1 million which corresponds to earnings of 18.9 cents per share. In comparison last year on a comparable basis profit was $160.1 million however last year’s statutory profit was $340 million the difference largely accounted for by the loss of earnings from the Victorian Tabaret business.

While comparisons based on continuing business look ok, the reduction in bottom line earnings power of the company is a very real disappointment. This stark reality is particularly evident in the reduced payment to shareholders of a fully franked 19 cent dividend compared with last year’s 24 cent distribution.

Hazy outlook

Management provided comments on its focus for financial year 2014 but failed to provide any hard numbers. The focus over the coming year included – to drive market and digital leadership in Wagering, finalise negotiations for TVN media rights, expand Keno through product and technology, expand TGS into NSW and maintain expense discipline.

Foolish takeaway

Tabcorp has suffered from a number of company specific issues which management has been quick to respond and adjust the business model to. On balance the outlook for the gaming stocks appears mixed with three of the four analysts (followed by and including Morningstar) maintaining a sell recommendation on Tatts Group (ASX: TTS) while three of the same four analysts have a sell or hold recommendation on Tabcorp. Meanwhile star performer Jumbo Interactive (ASX: JIN) is rated a sell and a hold respectively by the two analysts covering the stock within Morningstar’s universe.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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