TABCORP HOLDINGS LIMITED (TAH)
Author: Geoffrey Hill, Geoffrey Hill is presenter of ABC News Radio's daily afternoon finance report and is an independent private client adviser. Email gh@ghill.com.au
Date: 22/01/2003
Words: 439
|
|
|
|
Publication: Sydney Morning Herald
Section: Money
Page: 2
|
|
|
Price movement Tabcorp's share price has dropped from a high of $13.30 in
June last year to about $10. It performed strongly from its listing in 1994
until 1999 but has since traded in a $4 range from top to bottom almost three
times. The acquisition of the Sydney Star City Casino in 1999 accounted for some
of the early price weakness but has since propelled Tabcorp's growth. The
current weakness is partly due to the risk of it making another large
acquisition.
Profile The Kennett Victorian government floated Tabcorp Holdings in 1994. It
has rewarded early investors, with dividends growing from 15 cents a year in
1995 to more than 62 cents last year. Principal activities revolve around
gambling.
Current details The Victorian Government introduced a smoking ban in clubs
and pubs in September last year, which has contracted gaming revenues. It is too
early to extrapolate a full year's effects but Victorian gaming revenue will
probably have no growth this year at best. The Star City Casino and hotel
continue to provide growing returns. Total group net profit jumped 39 per cent
to $261 million for the year to June. Tabcorp pays out about two-thirds of
profits in dividends, with a franked dividend yield of 6.2 per cent. This year's
profits look similar but if Tabcorp issues shares to acquire Jupiters there
will be a dilution to Tabcorp earnings as Jupiters is selling on a higher
price-earnings. This would lead to share price weakness.
Sector Tabcorp Holdings (market capitalisation $3.7 billion) is in the
process of making a merger offer for Jupiters Limited ($1.2 billion). Jupiters
runs two casinos, on the Gold Coast and in Brisbane. Jupiters was, in its own
right, having merger discussions ($600 million) with UniTAB (formerly TAB
Queensland). There are two potential sticking points. The first is that the
Queensland Government could place onerous conditions to protect Jupiters's
position as a tourist magnet. On this point the Queensland Government would
prefer the UniTAB/Jupiters scenario merger. The second sticking point is how the
Australian Competition and Consumer Commission will perceive the market
dominance that the Tabcorp merger would have in restricting competition.
Worth buying? If Tabcorp Holdings does not acquire Jupiters, the short-term
risk drops and the price could recover much of its recent slide. The current
weakness presents an opportunity for investors looking for income to buy and
accumulate at about the $9.80-$10.30 range for a yield of about 6 per cent.
|
|
Print Entire Page