Tabcorp share price halted ahead of $600 million equity raising

The Tabcorp Holdings Limited (ASX: TAH) share price is on hold after launching a $600 million equity raising following its full-year results.

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The Tabcorp Holdings Limited (ASX: TAH) share price is in a trading halt this morning after launching a $600 million equity raise following a full-year $870 million loss.

Why the Tabcorp share price is one to watch

For the year ended 30 June 2020 (FY20), Tabcorp reported a 4.8% slump in group revenue to $5,224 million. Lotteries & Keno contributed 56% of revenue while Wagering & Media (40%) and Gaming Services (4%) made up the rest.

That flowed through to earnings before interest, tax, depreciation and amortisation (EBITDA) which fell 11.5% lower to $995 million.

The Lotteries & Keno segment was the only unit to report positive growth across revenues, EBITDA and EBIT during the year.

Tabcorp cited the coronavirus pandemic as a the major contributor while a non-cash goodwill impairment charge hit the company’s bottom line.

The Aussie wagering group reduced goodwill in its Wagering & Media segment by $905 million while Gaming Services goodwill took a $185 million hit.

Profit before significant items was down 31.6% to $271 million while the company booked a statutory $870 million loss after tax.

The Tabcorp share price is one to watch when it emerges from the current halt after reporting a 42.9 cents per share (cps) loss and paying no final dividend for FY20.

That means the full-year distribution totalled 11.0 cps, down 50% on FY19 dividend figures.

Positively, the group’s integration of Tabcorp and Tatts is now “substantially complete”. Tabcorp reported that cost synergies were on track with revenue synergies unable to be measured due to COVID-19.

Those impacts have been significant and forced a number of measures to be taken by the wagering group. The pandemic has seen the cancellation or postponement of many sports, although domestic racing has continued.

Capital management and equity raising

Tabcorp has looked to furlough staff and slash costs with a renewed focus on capital management reflected in its prudent dividend policy.

That has seen Tabcorp launch an entitlement offer to raise approximately $600 million of equity from shareholders. This comes as Tabcorp looks to strengthen its balance sheet and move towards a lower target gearing range.

Eligible shareholders are entitled to 1 new Tabcorp share for every 11 shares held on the record date of Monday 24 August.

The 0ffer price of $3.25 per new share represents a 10.6% discount to its theoretical ex-rights price and an 11.4% discount on the Tabcorp share price at yesterday’s close.

The Tabcorp share price will be worth watching when it returns to the boards in coming days.

July update

Investors will react to the latest results once Tabcorp shares resume trading this week. Despite reporting some softer numbers, it has been a strong start to FY21 for the wagering group.

Lotteries & Keno revenue is up 4.7% in July with strong ACT digital growth a primary driver. Wagering & Media revenue has increased thanks to many sports now having resumed.

However, Gaming Services has seen revenue drop 52.2% in July largely thanks to venue closures in Victoria.

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