Odds change for Tabcorp - Wednesday 30th of November 2005

AS INVESTORS dumped Tabcorp shares yesterday, questions were asked about why the gambling company would cite an economic downturn as a reason for cutting its profit forecast.

Tabcorp CEO Matthew Slatter nominated factors including "weaker consumer sentiment, reflecting increased fuel prices", in lowering earnings growth expectations to 5 per cent this financial year. In August he had forecast 10 per cent.

In response to the downgrade, Tabcorp shares fell 80c or nearly 5 per cent to $15.85, as investors wiped more than $400 million from the companys market worth.

Amid the rout, there was scepticism about Mr Slatters explanation, given that Tabcorps economically resilient assets -- the New South Wales and Victorian TABs, plus Star City and Jupiters casinos -- should make it largely immune to a downturn.

"I thought that the consumer sentiment argument was a little weak," said CommSec gaming analyst Craig Shepherd.

Another stock-watcher put it more bluntly: "Some companies, when they come out with profit warnings, blame it on factors other than their own performance.

"I would have thought that people would have cut back on every other area than gambling."

When Mr Slatter was questioned about his "consumer sentiment" claim, he admitted: "We are insulated -- to a degree."

"I cant lay everything at the door of consumer sentiment because there are other things going on," Mr Slatter said, such as smoking bans in pokie lounges and TABs, as well as an ongoing dispute with race clubs over the telecasting of race meetings.

A major investor in Tabcorp, fund manager Perpetual Trustees, said the company needed to resolve the telecasting dispute quickly.

"Its very important they come to a resolution soon," said Perpetual portfolio manager Matt Williams. "Its impacting wagering turnover. That doesnt help anyone -- the race clubs or Tabcorp."

Mr Slatter said that the company had recently received a "detailed response" from the racing clubs to its proposal aimed at merging the two racing channels, Tabcorps Sky and the clubs TVN.

Mr Williams, whose portfolio reportedly includes an 8 per cent stake in Tabcorp, said he wasnt surprised by yesterdays profit downgrade.

"We were looking for 8-10 per cent growth so its not really a surprise that its been wound back a bit."

The value of Perpetuals stake would have fallen by about $30 million yesterday.

On overcoming the business impact of smoking bans, Mr Slatter said: "We have been responding with enhanced facilities for our smoking customers and we are starting to see some adjustment in customer behaviour."

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