Across the Australian equity components of investor portfolios, 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.

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

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.