The Tabcorp Holdings Limited (ASX: TAH) share price could enjoy a buoyant start to trade today after management posted stronger interim results and upped its cost savings guidance from its merger with Tatts.
The TAH share price is already up over 15% since hitting a more than one-year low of $4.14 in mid-December when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has gained around 9%.
The wagering stock is likely to be heading higher as management increased its merger cost synergies target to $95 million from $80 million. This brings the earnings before interest, tax, depreciation and amortisation (EBITDA) guidance from the acquisition of Tatts in December 2017 to $130 million to $145 million in FY21.
Synergy upgrade
The group's underlying EBITDA for the six months ended December 2018 jumped 9% to $554.3 million on a pro-forma basis while revenue improved 6.1% to $2.8 billion.
"The integration program is progressing well, and we have upgraded our synergy targets. We delivered $24 million of EBITDA from synergies and business improvements in1H19 and are set to deliver $55 million in FY19, up from our previous target of $50 million," said Tabcorp's chief executive, David Attenborough.
"The performance of Lotteries was the standout in 1H19. The strong performance was driven by digital growth and game innovation, including bigger and more frequent Powerball jackpots."
The same thematic has undoubtedly helped boost the on-line lottery business Jumbo Interactive Ltd (ASX: JIN) share price, which is close to a record high.
Tabcorp's own digital turnover increased 63.5% and currently makes up 21.5% of total lotteries turnover.
It's Lotteries & Keno business recorded a 26.3% jump in EBITDA to $252.2 million on the back of an 18.1% lift in sales to $1.4 billion.
Foolish takeaway
However, it isn't all good news. It's Wagering & Media division posted a close to 4% drop in both revenue and EBITDA, while its Gaming business fell by around a similar amount.
This makes its decision to buy lottery business Tatts look like a really smart move.
Management kept its interim dividend steady at 11 cents per share and the company didn't give much of an outlook for the rest of FY19.
As I mentioned, I think Tabcorp posted a credible result although my pick in the gaming sector is Aristocrat Leisure Limited (ASX: ALL).
