Purchase of Tabcorp Holdings Limited (ASX: TAH)

17th May 2022

Across the Australian equity component of investor accounts, we have bought Tabcorp Holdings Limited (ASX: TAH), Australia’s only licensed Lottery & Keno operator.

We are positive on the long-term outlook for TAH for the following reasons:

We believe the separation of the Lotteries & Keno business from the Wagering & Gaming Services segments is positive for investors. The two business segments and their structures are unique and attract different investors. We are of the view that the separate entities will be worth at least as much as the current combined entity.
The Lottery Corporation (ASX: TLC), that will operate the Lottery and Keno games, improves the portfolio’s defensive exposure. The Lottery Corporation acts as an effective monopoly as Australia’s only licensed lottery and keno operator, possessing long-dated operational licenses across most Australian states. These long-dated licenses also help alleviate regulatory risk.
The Lottery Corporation has strong recurring revenue driven by a loyal customer base and a strong brand name. This recurring revenue has also proved to be resilient throughout the economic cycle, with further growth to be driven by product innovation, game changes & omni-channel delivery.
The Lottery Corporation has significant earnings upside as it continues to increase its digital sales and continues to scale. The Lottery Corporation earns a higher margin on its digital sales, and as the business continues to invest into this online market, we expect margins to improve over the investment horizon, resulting in strong earnings growth.

The purchase of TAH has been funded through the de-weighting of several portfolio holdings.

As always, thank you for your ongoing support, and should you require further information, do not hesitate to contact your adviser.

Warnings and disclosures

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