Tabcorp: Weaker Wagering Raises Competitive Pressure

With softer wagering activity, competition is heating up for Tabcorp TAH. Revenue was down about 6% in the first quarter of fiscal 2024, with revenue declines across all segments. We expect weaker wagering activity to have an outsize impact on earnings as Tabcorp is forced to increase promotional spending to retain share. Punters show little loyalty to bookmakers and increasingly compare odds online before placing bets. We lower our fiscal 2024 EBIT forecast by 20% to AUD 129 million—a 14% decline on fiscal 2023.

While wagering turnover was down 1%, digital wagering turnover increased about 1%. But the digital segment is more competitively challenged. Players such as Sportsbet, Ladbrokes, and Betr are constantly looking to capture market share, offering free bets and generosities to lure punters, weighing on yield. Tabcorp noted yields were lower and generosities higher during the quarter. Digital technology has eroded the value of Tabcorp’s state-based physical wagering exclusivity, underpinning our view that the firm lacks an economic moat. Competition has ramped up considerably, aided by the ability of disruptors to advertise and undercut Tabcorp’s retail channels.

But our longer-term assumptions remain largely intact and the near-term earnings cut is immaterial to our unchanged AUD 1.10 per-share fair value estimate. We expect the longer-term structural trend of digitization in wagering to continue weighing on Tabcorp’s physical business. While we expect Tabcorp to benefit from the lower cost of digitized wagering, we expect cost benefits to be largely competed away over the long run. Margin expansion opportunities arise from primarily from cost-outs and operating leverage benefits as the business scales.