here is part one, the editorial, of todays report on TTS bt morgan stanley city, no ramping from my side, just a note to interested aprties, pls DYOR. thx,
Tatts Group Ltd
Declared the Winner on Lotteries
TTS has successfully bid for NSW Lotteries. It will pay $850m for the 40-year
License, in a 100% debt and cash funded deal, to settle in March 2010.
Guidance is that EBITDA in TTS Lotteries division will grow from $119m in FY09
to $240m by FY14e, and will be EPS accretive, before $14m of restructuring
costs. Our core EPS falls by 1.5% in FY10, rises by 2% in FY11e and rises by
5% in FY12e. We increase our target price to $2.80, and retain the Buy.
TTS's sell-off after the announcement was driven by "sticker shock", as the
mooted price had been c$600m. We understand that the terms of the final deal
delivered additional value over what had initially been proposed. We also believe
it is appealing for the NSW Government to deliver an "upside surprise" on the
price achieved, and the granting of additional concessions to achieve this
possibly suited both buyer and seller. Our previous Upside Case was $1,049m,
and on the guidance given, our valuation is now $1156m.
When TTS acquired the Qld Lottery Operations, it guided for EBITDA uplift of low
to mid $50m's; however in the first year, Lotteries division EBITDA improved by
$70m.We believe that the market is yet to fully understand the appeal of
Lotteries as a gaming business, particularly given the very long-term license TTS
has secured. TTS ownership of Qld and NSW Lotteries for extended periods
improves its likelihood of renewal in VIC in 2017 - this is not in our forecasts.
The market's reaction to the deal was driven by the higher-than-expected price,
without understanding where additional value may have been achieved. The
guidance given is above our previous "Best Case" valuation and we believe, as
the market understands the drivers, the value will be reflected
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