Tabcorp's profits dive 5 per cent in biggest drop in 5 years

On Thursday, Tabcorp Holdings presented a drop in half-yearly profit, in what becomes its biggest daily share price fall in five years. The profit decline reflects the tough market conditions which motivated the Sydney-listed bookmaker to diversify by buying lottery operator Tatts Group for $4.7 billion. That deal closed in December and Tabcorp counted 18 days of its contribution in its interim result.

Estimations also show that Tabcorp's net profit fell by a fifth to A$82 million ($64.1 million) for the six months end-December, missing the average analyst forecast of A$89 million, according to Thomson Reuters I/B/E/S.

"Online bookmakers have changed consumer behaviour to the point where there’s little value in physical betting operations. This reflects why Tabcorp wanted to buy (Tatts) so much, because it gave them that lotteries business and strong, stable earnings contribution,” said Gabriel Radzyminski, founder of Sandon Capital which holds Tabcorp shares.

British-owned Paddy Power Betfair, Ladbrokes, William Hill and Bet365 have obtained Australian gambling licences in recent years, heaping pressure on Tabcorp.

Tabcorp shares fell as much as 7 percent by mid-session, their biggest intraday decline since 2012 and making the company the biggest loser in an otherwise flat S&P/ASX 200 index.

The company’s wagering unit, responsible for three-quarters of sales, grew revenue just 1.4 percent, while the division’s pre-tax profit fell 11.6 percent.

“This was pleasing in a highly competitive wagering market in which competitors aggressively pursued customer acquisition ahead of regulatory change,” Tabcorp Chief Executive Officer David Attenborough said in a statement. “The wagering business has made strategic investments in digital commissions and venue partnerships.”

Including significant items, Tabcorp’s statutory net profit fell 58 percent. One-off costs included a A$49 million “onerous contract provision” and a A$4.3 million impairment charge for Sun Bets, a loss-making British online betting joint venture with News Corp . Tabcorp said Sun Bets’s performance was “unsatisfactory” and that the unit was under review.

Tabcorp cut its interim dividend to 11 cents per share, from 13 cents a year earlier. ($1 = 1.2788 Australian dollars)