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.


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Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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