Thursday, January 18, 2007

tabcorp sitting on billions

Tabcorp Holdings Ltd ( ASX:TAH) is predicted to be able to unlock up to $3.5 billion through rationalisation according to analysts. UBS analysts say Tabcorp could sell and then lease back the assets related to Conrad Jupiters casino on the Gold Coast and the Star City casino in Sydney. The funds could be used for acquisitions or returned to shareholders. The rethink on Tabcorp has been prompted by the $AUS17.1bn private-equity takeover of US gaming operator Harrah's Entertainment, much of which will be funded by mortgage-backed securities.

If management was to do this it would show a short sighted view on the business. I feel the longer term benefits of owning the property would far outweigh any immediate gain. Still traders could make a nice packet out of this restructure if it was to occur.

As far as tabcorp management I have to think they will go for this ploy as they do not seem to understand the future direction of some of their markets. The racing market is steadily moving towards the use of betting exchanges instead of totes, yet tabcorp has not introduced their own betting exchange. Their response to this has been to reduce their takeout for a few months on selected races. This gimick may create a slight increase in tote pools in the short term but the long term trend is still negative.

Tabcorp is an interesting share and at the current price ( PE Ratio around 17) I still don't see any good reasons why I would want to enter a position while the long term risk is still not addressed.

Good Luck Investing.

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