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Writer's pictureCharles Miller

Few posts after a long hiatus (3 of 4) - $TAH

This is not investment advice and does not consider your financial situation. Do your research before taking any positions in the securities listed below.


#3 – $TAH - Despite knowing it is cheap (<5x forward EV/EBITDA) their ailing digital penetration, NSW licence uncertainty & mixed choice of a new CEO makes it a riskier investment than the valuation seems


  • Unlike some of the other companies covered in these articles, $TAH immediately screens cheaply on forward cash flow and EBITDA metrics, noting that amort of licences & recent impairment charges do materially swing profits.

New CEO - The skills he has & what he doesnt

  • Given his role as CEO of AFL - everyone knows Gill McLachlan.

  • To summarise, I see him having the following positive impacts:

    • Reputationally he is well regarded for a company which is poorly regarded. This will help in working with major sporting codes and State wagering licences

    • He is likely welcoming of change given his ability to push Womens AFL

    • He has admitted he has shortcomings in wagering and will lean on the team

    • The LTIP is structured ok with reasonable alignment but the fixed rem is high

  • However, this is offset by several weaknesses:

    • There is genuine algorithmic disadvantages which $TAH has (e.g. Sportsbet has same game multis) and he won't be able to understand/pursure

    • Whilst Gill would definitely understand advertising, it is fair that gambling is super reliant upon online advertising spend as you can see from Sportsbet growth in Aus advert $ below

  • Finally, I don't think he would be particularly in-tune with what younger demographics are chasing as opposed to operators like Stake that have grown through Crypto gambling.

What has he done since being in the Chair

  • Since coming into $TAH he has lowered the bar for himself on all fronts:

    • removing all TAB25 targets

    • further impairment of NSW/SA wagering assets and goodwill (FY24 pre-tax impairment A$1.532bn)

    • Reduced FY24 proforma VIC license EBITDA A$115mn (from FY23 pro-forma A$140mn).

  • Generally I think "taking a bath" is well known by investment communittee so there's limited alpha in this

Why valuation is a bit pointless here

  • Valuation is always important, however, there are a few areas which make this tough:

  • A good result for $TAH in the next 3-years, following a disastrous FY24 financials (excluding the impairment) would be if the company generated

    • 3-year Revenue CAGR of c.4.5%

    • Pushed EBITDA margins from 14% to 15%

    • Opex for Wagering could be capped at c.$600-650m

    • Held a 7% ROIC

    • Ran down their net debt balance

    • Maintained a 26% market share

    So as you can see, the hurdles they have to achieve are really just stasis but that would be an incredible achievement given how things have been

  • Instead, the key items which I need to see $TAH to be interesting formulate clear messaging on the following

    • Costs: Greater clarity on their opex management plan:

      • What the true split out costs now TLC has been demerged (e.g. Victorian Racing is now included)

      • When they will have completed the rightsizing of the firm (Project Genus)

      • What the future payments are required in NSW

    • Digital Penetration: A genuine strategy change which will stop Sportsbet/Stake's dominance

  • App functions: Becoming a leader in stats/content or social betting (noting that live betting is banned in Aus)

  • Deleveraging: A clear focus on paying debt and not persuing M&A

Overall, I think $TAH is an ok company (if Flutter is $REA, they are $DHG) but I must confess the valuation is better than $DHG (5x forward EV/EBITDA in this case).

Instead of racing into buy the dip for $TAH I think there is patience which can be applied to see:

  • Monitoring if product improvements & a better advertising strategy gives them growth in digital gaming

  • Whether Gill chases M&A despite their relatively high leverage

  • How negotiations go with NSW licence

Whilst I know this company is cheap, I think it is operationally too ordinary to buy today.

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