Why the TAB Corp Holdings’ Share Price Rose Today

What Happened to Tabcorp’s Share Price?

Shares in gaming company Tabcorp [ASX:TAH] jumped around 7% today compared to a fall of about 0.5% for the ASX 200. The rise caps a solid few months for Tabcorp’s share price. In October 2013 it traded as low as $3.50.

Why Did This Happen to TAH Shares?

TAH’s shares rose on the back of a successful institutional capital raising, which saw the company raise around $140 million at $3.70 per share. The cut off for eligibility of the retail component of the capital raising ended today, which increased demand for the shares. That’s because eligible investors are entitled to buy new shares at $3.70, which is well below the current price.

What Now for Tabcorp?

I would expect the share price to fall after the eligibility deadline today. The recent strong advance looks artificial — driven by a capital raising rather than an earnings upgrade. Tabcorp is benefitting from the market’s desire for yield, as it pays out nearly 100% of its earnings in dividends. The stock looks expensive though, and trades on a price-to-earnings ratio of more than 21 times. This is well in excess of the market average.

Regards,

Greg Canavan+
for Markets and Money

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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

 


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