Shares of Tabcorp Holdings Limited (ASX: TAH) are trading 3.5% lower today after the gaming company reported its interim results.
Here are the main highlights from the result:
- Revenues up 2.1% to $1.16 billion
- EBITDA before significant items up 1.7% to $270.4 million
- Net profit after tax (NPAT) before significant items up 5.3% to $102.7 million
- Earnings per share (EPS) before significant items up 5.1% to 12.3 cents
- Statutory NPAT down 28.1% to $58.9 million
- Statutory EPS down 28.3% to 7.1 cents
- Fully franked interim dividend of 12.5 cents per share, up from 12 cents per share in the previous corresponding period.
Tabcorp’s statutory results were impacted by a number of significant items that totalled $43.8 million. These costs were related to its proposed merger with Tatts Group Limited (ASX: TTS), its UK business start up, AUSTRAC civil proceedings and costs relating to its most recent acquisition of gaming machine maker, INTECQ.
Although the result was broadly in line with market expectations, it once again highlights some of the challenges facing Tabcorp in an increasingly competitive market.
The company’s core wagering and media division was only able to grow revenues by 1.4% and remains under pressure from global betting companies like Ladbrokes and William Hill.
Unfortunately, its traditional bricks-and-mortar business continues to lose out to digital players with TAB retail turnover down 2.5% in the first half. While the digital segment did deliver double-digit turnover growth, Tabcorp still lags behind a number of its competitors when it comes to offering a market-leading product.
In light of this latest result, it appears its proposed tie-up with Tatts Group will be as important as ever in delivering value to shareholders with the deal expected to deliver around $130 million in EBITDA synergies each year.
Should you buy?
Although the shares currently offer an attractive dividend yield of around 5.4%, I don’t think investors should be rushing out to buy the shares today.
Tabcorp remains a low-growth company operating in a very competitive market. While the tie-up with Tatts Group will deliver some cost benefits, I believe both companies will still struggle to grow their top line revenue over the medium term.
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Motley Fool contributor Christopher Georges 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.