Tabcorp profits plummet as rebuild embarks with $600m cap raise

An eerie sort of irony surrounds wagering and sports giant Tabcorp Holdings (ASX: TAH) which is set to embark on a corporate rebuild in the same way an underperforming AFL team does. The CEO and Chairman are on the way out, fresh blood is being sought with a $600 million capital raise and a strategic shift has been declared in response to the $870 million loss reported today for FY20. 

Despite the significant drop in net profit after tax to an $870m loss for Tabcorp, which reported $361m NPAT the previous year, the Company has been adversely affected by the pandemic significantly more than their bookmaker peers which operate solely online. The loss was accentuated by previously announced non-cash impairment write downs of $1 billion. Excluding them, net profit fell 32% to $271 million.

“COVID-19 restrictions meant that hotels, clubs and TAB agencies were closed for significant periods of time during FY20. This has heavily impacted our Wagering & Media, Gaming Services and Keno operations,” said Tabcorp CEO, David Attenborough.

“We continue to support our venue partners and have waived more than $100m in fees to date.

“There continues to be uncertainty associated with COVID-19 in terms of both the severity and duration of the impact. Our focus is on positioning Tabcorp to emerge strongly in the post COVID-19 environment.” 

With global sporting leagues coming to a halt and Tabcorp’s retail venues shut through the peak of the pandemic, their Wagering and Media business EBITDA fell 19.5% to $361m. This was largely supported by online wagering through Tabcorp’s digital channels where horse racing has continued to operate throughout the pandemic, but with zero revenue from their on-course operations where race meetings proceeded without crowds.

As has been the case over the past few years, Tabcorp’s strongest performance has come from their Lotteries and Keno division which reported an increase of 1.8% in revenue to $2.9 billion and 5.7% EBITDA to $542 million where the division’s digital capabilities are more advanced than their wagering division. The growth was also supported by favourable lottery jackpots and re-negotiation with lottery ticket reseller Jumbo Interactive (ASX: JIN) on more favourable terms for Tabcorp. 

To best prepare for a post-COVID recovery and continued shift towards digital channels, Tabcorp has entered a trading halt with outgoing CEO David Attenborough announcing an underwritten Entitlement Offer seeking $600m. Existing shareholders will be able to secure 1:11 current TAH shares held, for $3.25 which represents a 10.6% discount on TAH’s theoretical ex-rights price of $3.64. 

TAH shares are expected to resume trading on Monday, 24 August. 

UBS is acting as lead manager and underwriter to the Entitlement Offer. 

Attenborough has announced his retirement from Tabcorp where he will depart in 2021, whilst Chairman Paula Dwyer will retire from the Board at the end of 2020.