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Results: Tabcorp share price could fall despite earnings growth

Kenneth Hall
Casino Chips Winning Hand

The Tabcorp Holdings Ltd  (ASX: TAH) share price is on watch this morning after the Aussie wagering group posted a 7.6% uptick in pro-forma earnings in its full-year results.

What were the highlights from Tabcorp’s results?

Tabcorp reported revenue up 8.7% and earnings before interest, tax, depreciation and amortisation (EBITDA) up 7.6% compared to pro-forma FY18 numbers.

In December 2017, Tabcorp announced an $11 billion merger with Tatts Group, which has made the comparison to FY18 results less useful than normal. According to the results release, the pro-forma numbers reflect adjustments as if the Tatts combination had been in place for the full year.

The company’s statutory net profit after tax (NPAT) came in at $362.5 million, compared to $28.7 million in FY18, with the obvious caveat of the Tatts merger.

Tabcorp’s Lotteries and Keno business contributed 52% of the company’s revenue, while its Wagering and Media segment made up a significant 42% during the year.

Tabcorp’s final dividend was a fully-franked 11 cents per share (cps), which combined with the 11 cps interim dividend, represented a 4.8% increase on last year’s distributions.

On the operational side, Tabcorp delivered $64 million in EBITDA synergies and business improvements in FY19, with a further $90 million expected to be delivered in FY20 and $130 million to $145 million in FY21.

The company’s focus for FY20 remains on completing its Core Technology programs, transitioning UBET to full TAB offering in 2H20 (with timing dependent on regulatory approvals) and progressing the group’s online Keno initiatives.

Foolish takeaway

While Tabcorp’s results appear solid on the surface, I don’t think the reaction from investors will be particularly positive this morning.

Despite increases in pro-forma revenue and earnings, the company’s growth appears to have slowed while noting that Tabcorp is yet to realise all synergies from its Tatts merger.

The company’s earnings remain highly concentrated in just two segments, however, a 4.8% increase in the company’s full-year dividend may be enough to appease some investors.

Overall, given where we’re at in the business cycle and the investors’ jumpiness with regards to growth forecasts, I’d expect to see the Tabcorp share price slump lower in early trade.

However, I’d argue that Tabcorp may be a better buy at the moment in the wagering sector given the troubles plaguing Crown Resorts Ltd  (ASX: CWN).

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Motley Fool contributor Kenneth Hall has no position in any of the 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 Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019