The share price of gaming giant Tabcorp Holdings Limited (ASX: TAH) has now fallen 12.3% to $4.48 since issuing a disappointing half yearly earnings report on February 8.
The post earnings drop and ex-dividend trade has now brought the total decline in 2018 to 19.7%.
What happened?
Tabcorp reported a 58.2% drop in statutory profit to $24.6 million hampered by significant one-off items of $57.4 million. The significant items mainly comprised of acquisition costs for the Tatts Group merger, Luxbet closure costs, and an onerous contract provision for Sun Bets. The one-off items were also partially offset by a net gain on a cash settled equity swap.
Earnings before interest, tax, depreciation and amortisation (EBITDA) were virtually flat at $269.6 million. However, the 2017 figure includes a $27.3 million contribution from Tatts for the 18 days of trade following the merger on December 14, 2017. Taking out the Tatts contribution indicates some weakness in the underlying business.
Tabcorp's wagering and media segment remains the company's largest contributor to profitability. The division's revenues grew by 1.4% over the prior corresponding period (pcp) to $1 billion but EBITDA fell by 7.3% to $181.8 million.
The decline was caused by a rise in taxes and commissions, and higher operating expenses attributed to increased customer acquisition activities and legal costs related to the CrownBet retail challenge.
Pleasingly, the Gaming Services segment improved with 6 months of Intecq trading compared to 1 month in the pcp. This led to a 38.4% increase in revenue to $83.3 million and 28.6% rise in EBITDA to $46.3 million.
The underperformance of the company's UK venture Sun Bets continues to be a concern. Despite revenues more than doubling to $3.7 million, Sun Bets EBITDA declined by 5.6%, posting a $22.5 million loss.
The pro-forma combined group results for the entire period were also underwhelming. With group revenues rising 3.1% to $2.66 billion, group EBITDA still declined by 1.2% to $485.4 million following a 3.6% increase in operating expenses.
Foolish takeaway
At current prices, the share price retreat presents some value provided the wagering segment can improve in the second half. However, the threat from online bookmakers increasing market share remains present in a competitive environment.
Longer term shareholders should also expect the $130 million in projected synergies and business improvements in the first full year following integration. These synergies are expected to take approximately 2 years to realise. A trailing dividend yield of 5.24% should also appeal to income investors.
