Tatts' share price not as bright as it seems CHRISTOPHER WEBB17...

Tatts' share price not as bright as it seems
CHRISTOPHER WEBB
17 August 2005
The Age

TRADING ROOM

IT'S official. Tattersall's scrip is overpriced.

It must be right as the company's house broker, none other than the esteemed House of Sachs Were reckons it is so.

Sachs initiated research coverage of Tatts yesterday, 40 days after the scrip listed.

The lead manager, financial adviser and sole bookrunner to the issue concluded in a research missive to selected clients that at $3.14 the stock "appeared expensive".

And what were the shares worth, pray tell?

Well, try $2.65.

Sachs' analyst Ashwini Chandra put a short-term "underperform" on the shares.

But, having a bit of an each-way bet, Chandra reckoned that the scrip would probably not drop to $2.65 and that at $2.85-$2.95 punters might well think about buying a few.

So what was The House of Sachs' thinking on the stock from which it has pocketed a pretty penny in the way of fees and brokerage?

The underperform tag was affixed because the scrip was trading at a premium to the broker's valuation of $2.65, a figure based, no doubt, on a giant spreadsheet factoring in an array of subjective considerations.

But Sachs reckoned that, notwithstanding the valuation, there could be substantial support for the stock from fund managers who get paid to mimic a sharemarket index.

Sachs said that up to 265 million shares could be bought for various funds to remain at the required index weight if Tattersall's shares were included in the S&P/ASX 200 Index.

"Based on trading volumes to date, we anticipate inclusion in mid-December 2005 but mid-September is a possibility," the report said.

"In addition, Tattersall's share register is likely dominated by a very strong retail and ex-beneficiary shareholder base.

"We anticipate these shareholders to be 'sticky' with the yield appearing reasonably attractive - 5.2 per cent fully franked in the 2006 financial year - and the earnings outlook stable.

"Given the initial public offering was small - 100 million shares - institutional shareholding is likely to be low.

"Therefore, trying to find the marginal seller is difficult.

"As a result of these factors we do not believe Tattersall's will trade to our valuation and would look to buy in the $2.85-$2.95 range, which would put it on a similar yield to Tabcorp," the report concluded.

Yesterday, the stock remained steady at $3.14, which was somewhat down on the $3.62 high reached on the first day of listing.

Bad luck the buyers in those early days didn't have Sachs' considered opinion on the stock.

But they can take heart as Sachs' long-term advice is to hold 'em.