interim financials, page-3

Hey DULL. I'm assuming you do know that the TTS share price has been depressed since April 2008 when the VIc Govt pulled the pin on TTS Pokies...
cutting a huge hole in TTS future earnings. The last and very recent Half Year result presents the last moments of revenue of Tatts Pokies for TTS. However that has meant since April 2008 when the share price reacted to the Vic Govt announcement the revenue has continued to include Tatts Pokies and the company has continued to keep the Div payout ratio in the 90%+ range. Meaning a wonderful div yield until the music stopped. It chose this option rather than hoard cash for a major acquisition to replace the Tatts Pokies revenue stream. You could argue there really aren't that many acquisitons within Aust shores that fit.

Okay so now the music has stopped (for Tatts Pokies). But in the 5 years between the ann and now the TTS management has continued to raise revenues from existing businesses and do a commendable job of replacing the revenue stream without stressing the debt levels too badly. Acquiring Tote Tasmania in Dec 2011 and more recently becoming manager of SA Lotteries come to mind.

So where does that leave EBIT going forward?
In the last half Tatts Pokies EBIT of $34.7 million was from six weeks of Tatts Pokies trading (the last 6 weeks TTS will see of this revenue stream) and from the monitoring transition operations that ceased on 15 Feb 2013. The group's exit is complete apart from a few technical staff which finished that work on 15th Feb.
So let's be conservative and call that $35 million of EBIT we won't see in the next half.
Initial calculations on the SA Lotteries deal looked like $30mil EBIT per half and now that we have some numbers on the business - which provided $3.4mill EBIT from commencement with TTS on 11 Dec I think we can be comfortable with that number.
That being so - in big round numbers we loose $35m from Tatts P and add to that $3.4m S.A lotteries added to the last half. That is $38.4mil EBIT needed to be replaced to mark time EBIT wise in the next Half. And we have $30mil EBIT from S.A Lotteries. So with no other changes we are down $8.4mil EBIT. Or 3.49% fall in EBIT overall for TTS for the Half.

Now I'm not taking any growth in the SA business into account or synergy savings as the business won't be intergrated into the in-house operating software for another 18 months.

On the downside: the acquisition will lift the interest bill of course. However TTS surprised with the strength of Revenue growth from continuing operations (ie x-Tatts Pokies). This company seems to have plenty of scope to use synergies and in-house cost savings.

Long story short. Revenue from continuing operations was up 16% for the Half. However, that included the first 6 month contribution from Tote Tasmania. I'm comfortable that TTS can at least replace that 3.49% shortfall on EBIT and comfortable with my earlier forecast of an 8c div payout for the current half. (I was pleased to be 0.5c too conservative for the last half- hope I'm saying the same in 6 months time).

I note that the Tatts Pokies proceedings in the Supreme Court of Victoria have a hearing scheduled to commence on 1 October 2013. I was also pleased to read that the legal costs associated with this claim are being expensed as they are incurred.

8c f.f div this half 8(?)c f.f next half = 4.85% f.f for the 12 calendar months at current share price of $3.30

Just some round numbers for you to consider.