We Expect Tabcorp's Lottery Demerger to Allow the Crown Jewel to Shine

The upcoming demerger of The Lottery Company, or Lottery Co, from Tabcorp allows shareholders to invest directly in the latter's crown jewel. We raise our fair value estimate for shares in the combined Tabcorp entity to AUD 5.00, from AUD 3.80 previously, following a fresh look at the competitive positions for the two separate entities. The raise is based principally on a lower cost of capital assumption and assigned moat rating for The Lottery Company, which we expect to thrive once liberated from the beleaguered wagering and gaming services businesses—more than offsetting additional one-off and ongoing costs following the demerger.