Tabcorp facing significant headwinds: Morgan Stanley

The wagering and media business could find revenues falling 11 per cent next financial year, the investment bank has warned.

Tabcorp is facing increasing competition from international rivals. Picture: Getty Images

Higher costs than its rivals and a lack of global reach will continue to hamper Tabcorp’s profits and lead to a lower market share for the company, Morgan Stanley analysts say.

In a lengthy note to clients, the investment bank says Tabcorp’s main competitor, Sportsbet, will be able to spend more on marketing, technology and product innovation given its significantly larger global revenue pool.

And Tabcorp’s wagering and media revenue is forecast to fall 11 per cent in the 2023 financial year driven by lower industry turnover after the opening of other gaming options such as casinos following the pandemic and other competitive pressures, they wrote.

The note, from Morgan Stanley analysts Melinda Baxter, Mac Ross and Ed Young, follows the demerger of the company’s lotteries and Keno assets into The Lottery Corporation in May.

And while there are plenty of interested parties searching for acquisition opportunities in the sector – notably Entain and Apollo Global Management – complex renegotiations of wagering licenses could push down the price a suitor would pay for Tabcorp, they note.

Entain, which operates under the Neds and Ladbrokes brands, and Apollo both made bids for Tabcorp’s wagering, media and gaming assets – both were knocked back.

The third bidder was BetMakers, which launched a $4bn cash-and-scrip offer in 2021. BetMakers in April said it would enter a partnership with News Corp – publisher of The Australian – and Tekkorp Capital – to create a new wagering venture.

"In our view, the new venture, known as NTD, has the potential to be a serious competitor to Tabcorp, with all three parties bringing their relevant expertise to the table. News Corp, for example, would be able to leverage its far reaching existing media assets to advertise and build up brand awareness,” the Morgan Stanley analysts wrote.

“Tabcorp’s share of the wagering market has been under pressure since the arrival of corporate bookmakers,” the note reads.

“Consumer preferences for betting online has driven retail’s wagering market share to all-time lows. These trends were further accelerated during the Covid pandemic, whereby retail out

lets were closed and a greater-than-usual proportion of users shifted to online platforms.”

Another concern for the Morgan Stanley analysts is Tabcorp’s bid for the West Australian TAB business. As they note, Tabcorp’s long and successful domestic track record and established relationships with the broader racing industry will be a competitive advantage during the bidding process, now underway.

But should the deal proceed, and the acquisition be funded by debt, Tabcorp’s leverage would be at the top end of its target. Other analysts at MST Marquee have suggested the company may have to raise some $500m in fresh capital.

Tabcorp was trading marginally lower on Friday morning, at 94c per share.