TABCORP shares slumped yesterday despite a solid full-year result as the market took issue with the company’s earnings outlook.
Tabcorp reported a net profit of $340 million in the year to June 30, down from $534.8 million in 2010-11, but the prior year included earnings from the casino business, which was demerged in June last year.
Based on continuing operations the net profit was 12.7 per cent higher than the $301.6 million reported last year driven by strong earnings growth and lower interest expenses following the demerger.
But Tabcorp shares slumped as much as 5 per cent during trading yesterday after the company flagged higher costs and lower-than-expected earnings from Victorian wagering business.
The termination of Tabcorp’s poker machine licence in Victoria next week will leave it with $17 million of corporate and IT costs to be allocated across the continuing business and higher racefield product fees. Tabcorp also warned that the terms of its new wagering licence in Victoria are ”significantly different” to the current licence, which expires next week.
If the new licence had applied to the Victorian wagering business this year its earnings before interest and tax (EBIT) would have been $150.2 million not the $229 million reported. ”The company has guided to pro forma wagering earnings of $150 million, which compares to our FY14 forecast of $190 million,” said Deutsche Bank analyst Mark Wilson.
The company was also keeping quiet on its plans to recover the $687 million it is owed in compensation as a result of its poker machine licence being cancelled next week.
Tabcorp chief executive David Attenborough said the company is ”looking at all options” but has not made a decision ahead of August 23 when the payment is due.
Tabcorp will lose its biggest profit engine with the loss of its pokie duopoly in Victoria but is looking to offset the loss with its new Keno licence in Victoria and the poker machine services business TGS.
The latter is on track to record underlying earnings of $55 million per annum based on the 8500 poker machines it has signed up.
In 2011-12, Tabcorp’s online wagering operations generated $2.16 billion in turnover, growing by 14.5 per cent compared to the prior year.
Fixed odds revenues were the highlight, growing by 41.5 per cent to $321.4 million. Totalisator revenues continued to decline as the market shifted to fixed odds betting where the profit margins are lower and Tabcorp faces strong competition from new entrants.
The company declared a final dividend of 11¢ a share full franked and said it targeted a dividend payout ratio of 80 per cent of net profit excluding the expected $47 million write-off of Victorian gaming goodwill in the current half year. Tabcorp shares closed 3.3 per cent lower, down 11¢, at $3.20.
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