MENU

Tabcorp Holdings Limited (ASX:TAH) just lost $91 million betting on its UK operations

The share price of Tabcorp Holdings Limited (ASX: TAH) is underperforming the market after the company became the second large cap in recent memory to beat a retreat from the UK market and take a big write-down.

The stock recovered some of its early losses to trade 0.2% lower at $4.65 at the time of writing, as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index defied a negative overnight lead from the US to trade 0.3% higher.

While the exit from its UK online joint venture (JV) wagering business with the NEWS CORP/IDR UNRESTR (ASX: NWS) owned Sun Newspaper had been flagged, the near doubling of the costs associated with the struggling venture would not have pleased investors.

Tabcorp will pay News around $71 million to exit the Sun Bets JV and will take a $91 million post-tax hit to its bottom line in its FY18 accounts. This is up from the $52 million that it recorded in its 1HFY18 results.

This won’t be the end of the matter either. Tabcorp expects to take another $10 million hit from its disastrous UK expansion in FY19.

Management decided to take the pain now on the underperforming JV formed in 2016 as it can’t see any improvement in the business for at least 18 months.

This sorry affair triggers memories of Wesfarmers Ltd’s (ASX: WES) embarrassing foray into the UK market with its home-improvement Bunnings chain.

The writedown for Tabcorp isn’t quite as shocking as Wesfarmers, but it still accounts for around 44% of its FY17 adjusted net profit. Tabcorp posted a net loss in that financial year due to a big write-downs as well.

But Tabcorp is putting a positive spin on the ordeal. It seems the millions won’t totally go to waste if you can believe its chief executive David Attenborough.

“While we didn’t get it right, we have taken valuable learnings from the Sun Bets start-up process and operations which will inform our approach across our portfolio,” said Attenborough.

What’s more, Attenborough is no shrinking violet and Tabcorp appears to be prepared to give its overseas expansion another go.

Hopefully the expensive lesson its shareholders are paying for will yield a better result next time round, although I get nervous whenever I hear an ASX company with a domestic-focused business talk about overseas expansion.

This isn’t to say we don’t have a handful of success stories to point to. Look at A2 Milk Company Ltd (ASX: A2M) and Afterpay Touch Group Ltd (ASX: APT), just to name a few.

But I suspect investors will prefer management focus on bedding down its merger with Tatts Group before feeling adventurous again.

In the meantime, there are other stocks that make better bets, according to the experts at the Motley Fool. They believe one such candidate is an emerging superstar that has outperformed the market in FY18 but is likely to deliver another year of strong returns.

Click on the free link below to find out what this stock is any why it should be on your radar.

The ASX small cap up 285% with no sign of stopping...

One Australian company has developed a state of the art device that's revolutionizing hospitals all over the world. Even better, this device is so profitable that the company rakes in 90% margins. That's a lot of cash. So no wonder the stock's up 285% since 2008 – with no signs of stopping...

To discover the name and code, simply click the link below. You'll discover our expert's #1 medical technology pick... and you can decide for yourself whether to get invested today.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of A2 Milk and AFTERPAY T FPO. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.