Australia: Tabcorp shares slump 80% as spin-off Lottery Corp surges on ASX debut to become a $7B company

On the day of its ASX market debut on Tuesday, Tabcorp’s spin-off Lottery Corp became an AUD 10 billion ($7 billion) company, as investors flocked to the highly profitable lotteries and Keno business, which Australian media says could soon become a takeover target. 

Lottery Corp stock traded between AUD 4.49 and AUD 4.70 on its first day, closing at its high. The debut follows a successful demerger from gaming giant Tabcorp, which saw its shares drop a massive 81%, as interest shifted to the new ASX member.

According to the Australian Financial Review, Sue van der Merwe, chief executive and managing director of the spin-off company, acknowledged the growth prospects of the domestic business, which has always done well during economic downturns.

Lottery Corp. is an omni-channel business with a portfolio of high-profile brands and games, strong digital growth and a retail footprint of about 7,000 retail outlets. This makes it one of the largest in the country, and management has pointed out the business offers infrastructure-like asset qualities with upside potential from digital growth.

Additionally, van der Merwe pointed out the possibility of expanding into international markets. However, she also stated that she would not be drawn on the prospects of the group soon becoming a takeover target for investors. Instead, the executive said a focus would be put on what the business can control, including a growth strategy of new products.

The group posted AUD 611 million ($431.5 million) EBITDA from revenue of AUD 3.2 billion ($2.3 billion) in the year ended last June 30, according to pro forma calculations by the independent expert’s assessment of the Tabcorp demerger. 

“You look back in history, we’ve got this proven ability to drive sustainable revenue growth, and we’ve seen that through downturns - through the GFC, for example, and other challenging economic cycles, through COVID," the company's CEO told Financial Review. "We’ve actually seen an acceleration of interest in our offering products”. 

Meanwhile, Tabcorp shares fell 81% to AUD 1.01, reflecting the demerger of its lotteries business. The company retains its sports betting and gaming services businesses after shareholders supported the demerger proposal, followed by court approval earlier this month. Existing Tabcorp shareholders have been issued 1 share in The Lottery Corporation for each share held.

The wagering and media business, which includes the TAB and SKY Racing brands, has struggled for years to match the performance of the company’s lotteries business, which accounted for the lion's share of its earnings. The business saw some growth for the first time in four financial years in 2020-21, before succumbing to pandemic pressures in the first half of 2021-22. Across the same half, lotteries marched to a record result.