Tabcorp Holdings To Take a $1 Billion Hit Thanks to COVID-19
Tabcorp Holdings is the latest gambling giant to reveal COVID-19 is destroying its financial figures. Crown Resorts, Star Entertainment, and Donaco International are all feeling the pinch. Genting Hong Kong is another company warning its first half losses will be significant. None of these companies have made an announcement with the magnitude of Tabcorp Holdings.
Analysts say Tabcorp Holdings are in the process of writing off $1 billion from the company’s value. The company’s wagering, media, and gaming services divisions are taking the hit. This astronomical figure represents 35% of the goodwill value of those divisions.
The write down doesn’t effect the financial covenants with those lending money to Tabcorp Holdings. Companies assign a monetary value to the goodwill of their customer, which can be huge sums. Tabcorp Holdings’ goodwill weighed in at $2.945 billion at the end of the 2019 financial year.
David Attenborough is the Managing Director and CEO of Tabcorp Holdings. He explained the decision to write off $1 billion from the company’s books in a statement to the ASX.
“COVID-19 has materially impacted our Wagering & Media and Gaming Services businesses. We are facing into a challenging and uncertain environment, and the current operating conditions and those expected into the future are relevant factors in assessing the value of the goodwill in those businesses at this time.”
What Is Forcing Tabcorp Holdings To Make The Huge Write Off?
The ongoing COVID-19 pandemic is battering the gambling industry. Governments consider casinos, betting shops, and gaming terminals as unessential businesses. This means they’re the first to close when governments place countries, or areas of countries, under lockdown measures.
All the retail wagering outlets and agencies in pubs and clubs belonging to Tabcorp Holdings have shut at some point during the past six months. This alone is enough to vastly reduce profits, but analysts fear longer term damage to the business. Some even predict permanent damage.
Bryan Raymond is an analyst with Citi and their analysis makes miserable reading for investors in Tabcorp Holdings. Gamblers habits tend to change and the COVID-19 related restrictions are making these changes happen at a higher rate.
Citi estimates 55% of all Tabcorp bets taken placed in its retail outlets in the 2016 financial year. This figure fell to only 37% in 2020 and Citi predicts this figure is set for a mere 27% by 2025.
“We do not expect retail wagering penetration to recover to pre-COVID 19 levels, and consider that the magnitude of this impairment reflects the fair value of the business.”
Company Profits Set To Fall By 31 Percent
The gloomy news continued for those investing in Tabcorp Holdings because profits are in free fall.
The company predicts a 31% reduction in profits, which isn’t as bad as the market feared. Underlying net profit after tax should come in between $267-273 million for the year ended June 30. This is a significant fall from the $396 million profit from the previous year.
EBITDA is the one key financial fundamental that investors and analysts use to determine the overall health of a company. The EBITDA of Tabcorp Holdings is expected to be between $990 million and $1 billion. This is a fall of 11% from the $1.124 billion the company posted in 2019.
Tabcorp’s lottery business and strong racing turnover helped to achieve these better-than-expected results. Analyst Mr Raymond warned he expects EBITDA from the wagering division to fall a further 11% in 2021. It’s not all doom and gloom, however, because he thinks lottery continually growing lottery sales can lift the total EBITDA to $1.03 billion.