unbelievable tts, page-4

Nothing much wrong with the result except the market had expected far greater earnings growth and factored this into the share price. Hence the market is now unwinding the premium built into the share price.

My guess is that the share price will oscillate around $4.00 (offering a 5% ff yield) for the next 6 months until further evidence of earnings growth is evidenced or a suitable eps enhancing acquisition is made.

UBS put out the following research note on TTS this morning:

FY07 Result – underlying below UBS

�� Underlying result 7% below UBS

Tattersall’s reported FY07 profit of $299.6m on a pro-forma basis, relative to UBS expectations for $320.4m. At the EBITDA line the company reported $452.1m, 6%
less than UBS estimates. A final dividend of 10cps was reported with the result, bringing the total FY07 dividend to 22cps.

�� Earnings changes: FY08E EBITDA -7.6%, FY09E EBITDA -8.7%.

Following the result we have downgraded our earnings estimates. Our FY08 estimates now assume EBITDA of $529.7m, which incorporates ~$84m growth on the pcp but is down 7.6% from our previous estimates.

For FY09E our EBITDA has declined 8.7%. The downgrades at the NPAT line have been more pronounced however (FY08E -16.5%, FY09E -15.5%), now incorporating higher D&A and net interest expense.

�� Strong growth potential still offered, with scope for further acquisitions.

We have downgraded our recommendation to Neutral and believe the stock is fairly priced around current levels. We continue to believe the investment case
remains solid however, and believe TTS offers strong earnings growth going forward (3-yr CAGR EPS growth forecast 14.5%). Further, the company’s undergeared balance sheet (with est. debt capacity for ~$1b for acquisitions even post potential licence renewal payments) could offer potential optionality value.

�� Valuation

Our valuation is on a DCF-derived SOTP basis. Incorporating our earnings changes, our DCF valuation has declined to $4.65 (from $5.20) with no other
changes to the model (WACC 8.9%, long-term nominal earnings growth rate 3.8%).