Treasure Chest | Jun 03 2025
FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.
By Mark Woodruff
Whose Idea Is It?
Morgan Stanley
The subject:
Australia’s largest multichannel wagering brand, Tabcorp Holdings ((TAH)).
Morgan Stanley sees upside risk to FY26 earnings for Tabcorp Holdings, citing good positioning to improve retail profitability through changes to venue commission structures and targeted product innovation.
A strategic pivot is underway to enhance monetisation in the retail network, notes the broker, including reducing commissions paid to pubs and clubs and reinvesting within the existing cost envelope rather than recycling savings into unrelated areas.
More info:
Analysts at Morgan Stanley suggest as Tabcorp’s promotional spending and capex are redirected to support in-venue activity, underperforming venues may be impacted more acutely, especially with the likely introduction of minimum turnover thresholds.
Further investment in the network will be complementary to the existing upgrade program which has been undertaken across high performing TAB venues in New South Wales, Victoria, and Queensland.
At February’s interim results, Macquarie noted the cost-out program had delivered -$20m in savings for the half and the cost benefits for FY25 were also increased by $10m to $30m.
Now, Morgan Stanley forecasts cost savings for the retail network of around -$20m in FY26, or circa -$5,000 per venue, thereby strengthening margins across the retail network.
In the words of new CEO Gillon McLachlan at the interim results presentation “retail will be a key part of TAB moving forward” and the company will “ensure the structural profitability for this part of the business while providing pubs and clubs with customised offerings.”
Tabcorp has around 4,000 venue partners across Australia (ex-WA), which comprise both standalone TAB betting shops and TAB counters in venues such as pubs and clubs.
While the company is unlikely to remove retail turnover-based commission (which is the largest commission pool contributor), Morgan Stanley anticipates management will look to variabilise all components of the payments made to venue partners and to implement minimum turnover thresholds for commission payments.
Product innovation, such as in-play betting in retail venues, is a competitive advantage leveraging Tabcorp’s licence footprint in ways digital-only rivals cannot replicate, explains the broker.
The suggestion made is these new offerings, combined with existing upgrades such as enhanced screens and exclusive promotions, will recoup some lost in-venue digital share.
Earnings were already benefiting from cost-out and the Victorian Wagering licence change, noted Macquarie at the interim result, but the underlying Wagering & Media business was still finding a floor, registering only 1% revenue growth, and generating only $120m of earnings, a fall of -10% year-on-year.
The latter broker was referring to the award of a new, exclusive Victorian Wagering and Betting Licence by the Victorian Government, commencing August 2024 and running for 20 years until 2043.
At the time, Jarden noted a difficult company turnaround was being further challenged by soft racing turnover, but sensed management was assembling the right building blocks.
This broker agrees the market under-appreciates the potential of Tabcorp’s unique portfolio of branded assets, likely due to their historical under-utilisation and entanglement in less accountable joint venture structures.
At the time of interim results, analysts could see significant upside if this potential is unlocked, particularly across the Retail and Media segments.
The half-year result made UBS incrementally more positive on the cost-out opportunity for both operating expenses and capex.
While maintaining a Neutral rating, UBS highlighted Tabcorp’s operating and financial leverage, making the stock highly sensitive to turning points in demand.
Certainly, Morgans could see long-term potential, supported by a series of specialised hires aimed at maximising value from Tabcorp’s existing asset base.
This broker raised its target to 75c from 60c following the result and upgraded to Add from Hold.
Now that Overweight-rated Morgan Stanley has also raised its target to 77c from 70c, the average target of four daily covered brokers in the FNArena database has risen to 72.8c from 69.5c.
The new average aligns with the 73c share price at the time of writing. Morgan Stanley and Morgans are Buy-rated (or equivalent) and UBS and Macquarie are on Hold.
Outside of daily coverage, Jarden assigns an Accumulate rating, which sits between Buy and Neutral in this broker’s rating framework.
Morgan Stanley’s upgraded price target (78c) is now the highest of the pack.
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