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 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.

Greg Canavan

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