History says The Lottery Corporation will be attractive to the big private capital players who love infrastructure-like businesses.
Sue van der Merwe says she’s never thought too much about being a role model for other female leaders. “I guess I’ve always just taken the approach that we are all equal, and that’s something that’s driven my thinking quite strongly.”
But having become the ASX’s latest female chief executive on Tuesday with the demerger of The Lottery Corporation from wagering group Tabcorp, she’s clearly excited to be inspiring the next generation of female executives.
“I am always very thrilled when I hear comments from within the organisation that a lot of young women do look to me as inspiration for them in their careers. That’s just really rewarding.”
The Lottery Corporation, which has a market value of $10.5 billion, won’t just boost the ranks of female ASX chief executives. After a period where the likes of Sydney Airport Corporation, Duet, Envestra, Spark and Ausnet have been taken over, or taken private, The Lottery Corporation’s listing gives investors hunting exposure to infrastructure another option in a dwindling pool.
Clearly, this is not pure-play infrastructure in the way that a toll road operator is – the business is perhaps better described as a multichannel retailer that sells gambling products.
But the nature of The Lottery Corporation’s long-dated monopoly licences and its steady, defensive cash flows give it infrastructure-like qualities that should lead it to eventually trade at a higher earnings multiple than Tabcorp did.
Before the demerger, Tabcorp was trading on an enterprise value to EBIDTA multiple of 12 times, whereas Macquarie values The Lottery Corporation at 17.6 times.
But recent history suggests van der Merwe and her chairman, Steven Gregg, could soon find themselves fending off a takeover advance.
Not only are infrastructure and infrastructure-like businesses frequently the targets of big investors such as superannuation funds and private capital firms, but demerged companies have also been popular takeover targets; analysis of 28 demergers by investment giant Perpetual found one of the two companies created in these splits was acquired within a few years on no less than 18 occasions.
For her part, van der Merwe isn’t getting carried away about the prospect of corporate action and is concentrating on ensuring The Lottery Corporation hits the ground running after an impressive few years that has had it boost EBITDA to a projected $711 million in the year ending June 30 from $395 million in financial 2018.
“We focus on what we can control,” she says. “We keep driving performance, we keep delivering, and we don’t get distracted by things that are outside of our control.”
And the newly listed group does have growth options.
Van der Merwe has done an impressive job building up digital lottery sales and optimising The Lottery Corporation’s portfolio of games by raising prices and tweaking games to build more interest from customers. In the short-term, van der Merwe and her team will oversee a series of changes to the Oz Lotto game, increasing prices, expanding prizes and improving marketing.
Beyond that, the big opportunity could come from international expansion. While there are few domestic lottery licences the group doesn’t hold, the model The Lottery Corporation has developed – optimise games to drive growth while growing sales through digital channels – should also work in foreign markets.
“We feel that it’s important that we focus on the current business and we don’t lose sight of the importance of that,” van der Merwe says.
“Having said that, opportunities to grow outside of that are something of interest to us and something we need to unpack more with the board in the coming months.”