TABCORP Holdings Limited (ASX: TAH)

TABCORP Holdings Limited (ASX: TAH) is one of the world’s largest publicly listed gambling companies. It is the leading player in the Australian market with a suite of customer brands that include TAB, Keno, Luxbet, TabcorpSky Racing and Sky Sports. We like this company for several reasons:

  1. its integrated nature given its media platforms;
  2. a defensive earnings profile with recurring earnings and relatively high barriers to entry;
  3. an above-average dividend yield of 5.7% fully franked.
  4. Last but not least is its potential merger with Tatts Group, the sole lottery operator in SA, NSW, QLD and VIC.

While this merger has received the green light from the Competition Tribunal, the ACCC is appealing the decision.

We believe the current share price reflects little, if any value, from the marriage of these two companies which would likely reap up to $130 million in savings.

If the merger does proceed, we believe the share price will receive a free kick along. We see minimal downside risk from current levels should the merger be knocked on its head due to the high dividend yield, which is one of the highest in the market place.

We believe the current weakness represents an ideal entry point into this company.

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