As the competition for the Victoria wagering licence gathers pace, the spotlight remains on the favourite Tabcorp and what it will mean for its earnings should it be successful.
Ad Astra Corporate Advisory has been running the contest for over a year, and it is finally on the home stretch.
Suitors have the opportunity to lob their final binding offer, in what is known as the Invitation to Apply phase of the competition, by the end of June.
An outcome of the contest was earlier expected around September.
The existing licence holder Tabcorp is considered the logical favourite to win the competition.
Morgan Stanley analysts believe the reset of fees and taxes in Victoria will create meaningful upside to Tabcorp earnings, should it be successful.
But if it lost the retail licence and operated on a digital-only basis, its earnings would be no worse than under the current arrangement.
Tabcorp is currently working to cut costs, saving over $600m by fiscal 2025 and has so far saved $20m by cutting 5 per cent of its workforce.
Its share price has staged a strong recovery since 2021 in the aftermath of the global pandemic.
Cuts to television advertising will also result in savings.
Morgan Stanley has a $1.30 price target on the stock, not factoring in the Victoria licence win, but should it gain the licence, it expects its share price to hit $1.50.
Tabcorp shares were at $1.13 at midday trade with its market value at $2.5bn.
London-listed Entain is a well-placed challenger to Tabcorp, with the Ladbrokes owner recently winning the right to run the New Zealand TAB, and Sportsbet was earlier expected to compete.
Credit Suisse analysts earlier said that they saw Entain as the only other logical bidder, although it made sense for Entain, which previously bid for Tabcorp, to allow Tabcorp to buy the licence then return with another buyout proposal for Tabcorp as a whole.
One outside chance is thought to be Intralot, which runs lotteries in Greece, yet Matthew Tripp’s Betr, which is up for sale through investment bank Barrenjoey, is not expected to be a contender.
Tabcorp has held the Victoria racing licence since 1994 and Credit Suisse analysts last year said Tabcorp would likely pay about $500m for the renewal.
Tabcorp and Victoria are in a joint venture that expires in August next year, for which Tabcorp paid an upfront $410m in 2011 for the right to continue to exclusively operate retail betting outlets and TABs in pubs and clubs.
The Australian reported earlier that Tabcorp claims to own the customer database, which rivals would have to build from scratch and would lack interest in the contest without the customer data.
The joint venture been Tabcorp and Victorian racing generates annual earnings before interest and tax, depreciation and amortisation of $220m-$250m – which some estimate gives it an intrinsic value of $1.5bn-$2bn.
The winner is expected to gain a licence lasting 20 years, and the increase of point of consumption tax in Victoria to 20 per cent is likely to make the contract more attractive.
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