Across client accounts that have selected the “Income” Australian Equity option we have bought Tabcorp Holdings (TAH), a diversified gambling entertainment group offering a diverse product range including wagering, lotteries, Keno, media and gaming services throughout Australia and the United Kingdom. This purchase has been funded from the sale of Flight Centre Travel Group (FLT).
We are positive on the medium-term outlook for TAH for the following reasons:
the Tatts merger adds a complimentary business with stable revenue and long term exclusive licenses
the merger also provides opportunity for substantial synergy benefits
increasing lottery sales via digital channels provides scope for margin improvement
the combined wagering business enjoys a dominant market position and improving regulatory environment
the gaming services division is growing strongly, enjoys inflation linked price increases and has excellent margins
opportunities exist to improve fixed price yields in UBET
As with all investments it is not without risks which include operating in a highly regulated industry with increasing restrictions aimed at protecting customers. The online wagering environment where corporate bookmakers have in recent years enjoyed a cost advantage is particularly competitive, and ‘synthetic lottery’ operators like Lottoland pose a threat to the monopoly position traditionally enjoyed by incumbent lottery providers – proposed regulatory changes may however help ease both the latter pressures going forward.
The purchase was funded from the sale of Flight Centre following very strong price appreciation in recent months that has also seen the forecast dividend yield fall dramatically. While the reporting season showed that trading across all regions in which Flight Centre operates was strong, especially the international and corporate businesses, the domestic leisure market remains subdued with near term profit growth potentially slowing. At current valuations we prefer the more certain forecast dividend yield from Tabcorp for clients that have elected the ‘Income’ option, despite the medium-term earnings growth potential offered by Flight Centre.
This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.
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