The Tabcorp share price has quietly climbed its way up in the last 6 months, rising by 18%. Let’s take a look at its prospects for 2021.
The post How will the Tabcorp (ASX:TAH) share price do in 2021? appeared first on The Motley Fool Australia. –
The Tabcorp Holdings Limited (ASX: TAH) share price has quietly climbed its way up in the last 6 months, lifting 18%. This follows a fall of more than 50% in March as the coronavirus pandemic ravaged the economy, closing down many of the company’s venues.
Can the Tabcorp share price carry its rising momentum into 2021?
Looking back at 2020
The company was among the hardest hit by COVID-19. It posted a whopping statutory net loss of $870 million for full year FY20, which included significant one-off goodwill impairment item of its wagering business of $1.1 billion.
This loss was made on the back of a $5.2 billion top line revenue, which was only 5% lower than the previous year.
Its lottery business managed to steady the ship, with Lotteries and Keno remaining mostly unaffected and delivered another strong result in FY20.
Tabcorp’s lottery business accounts for over half the group’s revenues, and almost 75% of earnings before interest and taxes (EBIT) in FY20.
The cash-cow lottery business
The company’s lottery business is a highly stable and cash-generative business, and dominates the Australian lotteries landscape.
The business is underpinned by long-dated, state-based licences throughout Australia (except for Western Australia). These long-dated licences are intangible assets which present barriers to entry for competitors.
Under the banner “The Lott”, Tabcorp operates in all Australian states and territories except Western Australia, and enjoys around 85% national lotteries market share.
The Lott’s sheer size means that its national pool enjoys an essentially monopoly position in its addressable market for each state, and makes it difficult for a competitor to gain traction.
Investment into digital wagering platform in 2021
Meanwhile, the company acknowledged during its annual general meeting (AGM) that its wagering business is under pressure from digital competitors.
Digital technology has allowed consumers to bypass the Tabcorp’s retail channel, which includes premises such as such as racing venues, hotels, and TAB agencies.
This is because anyone can now shop around for better odds and place bets online through smartphones while sitting in a Tabcorp venue. The COVID-19 shutdowns have also accelerated the trend towards online wagering.
This fast encroaching digital competition has led Tabcorp to write down $1.1 billion from its wagering business in fiscal 2020, which is around a third of the prior book value of goodwill.
The company has said that in order to compete in the online wagering space, it would use cash from the lottery business to be invested into its less competitive digital wagering capabilities.
About the Tabcorp share price
As mentioned, the Tabcorp share price is on a roll, rising by 18% in the last 6 months.
The company is now targeting a dividend payout ratio of 70% to 80% underlying earnings on resumption of dividends, from 100% previously.
At the time of writing, the Tabcorp share price is up 2.31% at $3.99.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.