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If you sell Tatts Group shares now, you might regret it

horse racing

Lotteries and wagering business Tatts Group Limited (ASX: TTS) on Wednesday issued a response to recent media speculation regarding a potential acquisition.

According to the ASX release, Tatts is in confirmatory due diligence on an exclusive basis with Intralot with a view to acquiring Intralot’s Australian and New Zealand operations.

So what exactly is Tatts in discussions to buy? A review of Intralot’s website provides the following information:

  • Intralot’s Australian operations involve the provision of an electronic monitoring system for all hotel and club electronic gaming machines (EGM) in Victoria. Intralot was granted Victoria’s single EGM Monitoring License in August 2012. The license runs for 15 years.
  • Under the license, Intralot must meet numerous requirements including recording and monitoring all EGM. Intralot must also provide data and information on EGMs for regulatory, tax and research purposes.

The timing of Tatts’ news is interesting considering this week gambling operator Tabcorp Holdings Limited (ASX: TAH) also announced that it has made an offer to acquire EGM solutions provider Intecq Ltd (ASX: ITQ) in a deal valued at $128 million.

Buy, Hold or Sell?

With Tatts’ share price rallying around 70% in the past five years, but flat over the last 12 months, some shareholders may have reached the conclusion that it’s time to move on.

Investors with this viewpoint would no doubt be concerned about the increased level of competition entering the wagering space from offshore and online bookmakers.

The heightened competition is certainly a concern, however, there are reasons to remain positive for Tatts shares.

Firstly, the potential acquisition of Intralot’s operations is a reminder that there are still bolt-on opportunities available to this market leader.

Secondly, some Tatts shareholders, such as listed investment company Sandon Capital Investments Ltd (ASX: SNC), are pushing the company to release shareholder value, which they believe is “trapped” within the current group structure.

Amongst the value enhancing measures suggested by Sandon is for Tatts to undertake a demerger of  wagering operations in the hope of enhancing the standalone market valuation of its lotteries business.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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