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Why the slide in the Tabcorp share price is no reason to worry

Posted: 24 May 2022 12:28 pm
News
TAH-shares-24May_1800x1000_Finder

Until today's sharp move, shares in the gaming giant had edged 7% higher over the last 12 months.

Shares in gaming giant Tabcorp (ASX: TAH) are at the top of the charts as the most traded shares on the ASX, after losing more than 80% of their value on Tuesday to $1.01 each.

But don't panic, the value of the vast gambling and entertainment empire is still relatively stable.

Why is the Tabcorp stock price crashing today?

The value of the Tabcorp stock price has dropped following the successful $11 billion demerger scheme, one of the biggest deals on the ASX, that comes into effect from Tuesday.

Under the deal, Tabcorp has hived off its lotteries and keno business, well-known lottery games such as Powerball and Oz Lotto, into a new listed entity trading as The Lottery Corporation Limited (ASX: TLC).

Tabcorp will retain its existing wagering, media and gaming services businesses, such as those trading under the banners of TAB, Sky Racing and MAX.

The deal, which followed a strategic review by the company, received a nod from shareholders followed by court approval earlier this month and is effective from Tuesday.

Existing Tabcorp shareholders have been issued 1 share in The Lottery Corporation for each share held.

The TLC business accounted for the lion's share of earnings for Tabcorp, contributing 55% of the combined company's EBITDA in fiscal 2021. The drop in the Tabcorp share price reflects the loss of these earnings, while TLC shares are now trading at $4.65 each.

The TLC shares will be part of the S&P/ASX 50, 100 and 200 indices.

Separate plans

The current demerger is effectively a reversal of Tabcorp's merger with the Tatts business 5 years ago, with the TLC business now including the old Tatts lottery business plus the Keno pubs lotteries unit.

TLC has stable, predictable cashflows from lotteries while digital channels offer further upside for growth. It aims to pursue growth through innovating its game portfolio, boosting customer experience and increasing digital penetration. It also aims to expand its retail footprint and pursue new licence and acquisition opportunities.

The remaining Tabcorp business also has significant size, with revenue of $2.5 billion and EBITDA of $464 million as per FY21 numbers and offers presence wagering, racing and sports broadcasting, and gaming services solutions.

Although partners such as Racing NSW have warned the split could result in reduced funding for racing bodies, the company believes the business is well positioned for organic growth and potential upside from likely changes in the wagering and gaming industry.

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Considering buying TAB or TLC shares?

If you are keen to buy shares in Tabcorp or The Lottery Corporation, you can invest through an online share trading platform.

Keep in mind that not all platforms offer the same list of stocks. Some offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

Choose from the dozens available for Australian investors. Compare the features and fees from the plethora of trading platforms available.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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