Published: May 24, 2022

Tabcorp shares slump 80% as spin-off Lottery Corp surges on ASX (Australia Stock Exchange) debut to become a $7B company

On the day of its ASX market debut on Tuesday, Tabcorp’s spin-off Lottery Corp became an AUD 10 billion ($7 billion) company, as investors flocked to the highly profitable lotteries and Keno business, which Australian media says could soon become a takeover target. 

Lottery Corp stock traded between AUD 4.49 and AUD 4.70 on its first day, closing at its high. The debut follows a successful demerger from gaming giant Tabcorp, which saw its shares drop a massive 81%, as interest shifted to the new ASX member.

According to the Australian Financial Review, Sue van der Merwe, chief executive and managing director of the spin-off company, acknowledged the growth prospects of the domestic business, which has always done well during economic downturns.

Lottery Corp. is an omni-channel business with a portfolio of high-profile brands and games, strong digital growth and a retail footprint of about 7,000 retail outlets. This makes it one of the largest in the country, and management has pointed out the business offers infrastructure-like asset qualities with upside potential from digital growth.

Additionally, van der Merwe pointed out the possibility of expanding into international markets. However, she also stated that she would not be drawn on the prospects of the group soon becoming a takeover target for investors. Instead, the executive said a focus would be put on what the business can control, including a growth strategy of new products.

The group posted AUD 611 million ($431.5 million) EBITDA from revenue of AUD 3.2 billion ($2.3 billion) in the year ended last June 30, according to pro forma calculations by the independent expert’s assessment of the Tabcorp demerger. 

“You look back in history, we’ve got this proven ability to drive sustainable revenue growth, and we’ve seen that through downturns - through the GFC, for example, and other challenging economic cycles, through COVID," the company's CEO told Financial Review. "We’ve actually seen an acceleration of interest in our offering products”. 

Meanwhile, Tabcorp shares fell 81% to AUD 1.01, reflecting the demerger of its lotteries business. The company retains its sports betting and gaming services businesses after shareholders supported the demerger proposal, followed by court approval earlier this month. Existing Tabcorp shareholders have been issued 1 share in The Lottery Corporation for each share held.

The wagering and media business, which includes the TAB and SKY Racing brands, has struggled for years to match the performance of the company’s lotteries business, which accounted for the lion's share of its earnings. The business saw some growth for the first time in four financial years in 2020-21, before succumbing to pandemic pressures in the first half of 2021-22. Across the same half, lotteries marched to a record result.


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

Value of vast Australian gambling corporation is still stable after lottery spin-off.


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.

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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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