Tabcorp

Tabcorp (TAH) have a Neutral 2 share trading recommendation and an unchanged price target of $16.80 from analyst UBS. UBS forecast H1 07 NPAT $279.7m, down 1.3% on the $283.2m reported in the pcp. They forecast a 45c/share dividend [44c/share in the pcp]. Given management gave guidance for a 1H result "pretty much in-line with the pcp" at the AGM close to the end of the half, we do not expect the result will vary from this guidance to any large degree. With cap management a key theme this reporting season, the analyst believe that there are various options available in this result. With $114m of excess franking credits, they believe TAH could announce a $350m off-market buyback, which we calculate will be 1.5-2.5% EPS accretive. Alternatively there is the potential for a special ff div of 50.5cps, which would take FY07 div yield to ~8%. Whilst they believe any cap management initiatives will be taken well by the market, TAH continues to face numerous headwinds. We are particularly mindful of the upcoming newsflow around the Star City exclusivity (expires Sept 07). The analyst's valuation and price target are DCF-based, using a WACC of 9.0% and assumes renewal of the VIC gaming and wagering licence which adds 50cps. Whilst one cannot ignore the high quality assets owned and operated by TAH (not only strong market position, but also the strong cash generation), trading on an adjusted FY08E EV/EBITDA of 11.2x, they believe the stock is fully-priced at current levels.

Tabcorp (TAH) has a Neutral 2 shares recommendation and a share price target of $16.80 from shares analyst UBS. The analyst has theorised some ways that Tabcorp can rationalize their balance sheet: "Options include: 1) Sale and lease-back of casino property - which UBS calculate would be roughly EPS neutral given current property cap rate levels. UBS estimate TAH could raise anywhere between $1b to $3.5b. 2) Leverage balance sheet - retaining investment grade debt would allow an additional $1.1b in debt, however Sky City-type leverage levels would allow as much as $2.5b in additional debt." UBS notes that, at the recent AGM Tabcorp management stated they would explore inorganic growth options that leverage TAH's scale and capabilities. UBS believe SKC fulfills such criteria, and analyse a potential Sky City acquisition. We calculate EPS accretion of circa 8.4% if fully debt funded, assuming a ~19% premium and $25m synergies by yr 2. UBS calculate TAH has the ability to pay a fully-franked div of $265.3m (or circa 50cps) utilising excess franking credits. Alternatively this could be structured as an off-market buyback that is part fully-franked dividend and part capital return. Given average franking of 75% and discounts of 15% for this type of buy-back, UBS calculate EPS accretion of 1.5%-2.5%.