Tabcorp's impairment tango

The earnings season has only just begun but already there has been a liberal sprinkling of the most dreaded word in the results lexicon – impairment.

Tabcorp (TAH) this morning is the latest with a 63% drop in earnings to $126.6 million, far worse than anticipated.

The result was shaved by an $18.6 million “impairment” on its Victorian Keno licence and $47.2 million in “write-downs” on its decommissioned Victorian Tabaret Gaming business.

What does it all mean?  It’s code for: “We took your money and torched it. But if we expressed it in those terms you may object to paying us a bonus.”

Tabcorp has enjoyed a strong run in its share price, up around 10% this year. While this morning's result is a disappointment on almost every measure – including earnings before significant items – the company is likely to remain in demand if only because of its yield.

Even with a reduced final dividend, the stock is still delivering a yield of 5.7% which looks mighty attractive against term deposits that now are trending below 4%. The gulf is even wider when tax is taken into account.

Like every corporation that has delivered a stinker, Tabcorp is pointing to the future and desperately hoping investors don’t pay too much attention to the immediate past.

There is the upside from Victorian gaming entitlement. But that doesn’t really kick in until 2015. And don’t forget that in NSW it has extended its exclusivity deal for retail wagering until 2033. The Keno licence in Queensland is now in place until 2047.

2013? Let’s just put the past behind us.