TAB raises doubts
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The Sky Channel contribution was $0.7 million below forecast due to lower than expected advertising and special event revenue (Sky Racing, the home racing channel, should be launched on September 5). The initial program will be based on thoroughbred and harness racing from NSW and Queensland and greyhound racing from all states other than Western Australia. Victorian coverage was recently secured just 48hrs prior to the launch of Sky Racing.
Expectations met
Foxtel and Optus have both entered long term contracts to broadcast Sky Racing as part of their basic package for subscribers. TAB's investment in home television will be reflected in expanded customer interest and increased wagering revenue over time and this should be a big plus.
It would be fair to say that TAB's maiden result as a listed company was inline with expectations (minus the surprise abnormal gain) but we believe that TAB does not warrant a similar pricing to Tabcorp. With TAB currently trading on a prospective FY99 PER of around 26 times earnings (compared to Tabcorp's FY99 PER of 23), investor confidence is largely built on faith in the potential of the company rather than established earnings streams. Tabcorp on the other hand has proved its worth.
To justify its premium to Tabcorp, TAB will need to demonstrate solid earnings and margin growth in the period ahead. However, given that the prospectus indicated that TAB is forecasting NPAT of $50 million for FY99 (which may well prove conservative), any real earnings growth is unlikely until some time during FY00. For this reason we would expect Tabcorp to outperform TAB in the coming months. HOLD while the share price has good support.
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