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Financial Updates 28 – 06 – 16 (2)

Tatts Group announced yesterday that it was selling Talarius, its UK AGC business to Novomatic for £111m. The business operates c. 160 AGCs across GB (11% market share by licence) mainly under the Quicksilver brand, including in motorway service stations. YT June 2015, it generated revenue of £60.8m (+6.5%); EBITDA of £9.0m (+11.1%) and EBIT of £3.3m (+27%) [figures for RAL ltd]. Tatts stated that the proceeds would principally pay down UK debt, which judging from European Gaming accounts (another Tatts subsidiary, used to buy Talarius in 2007), still stands at £190.1m. Tatts bought Talarius in February 2007 with Macquarie (exited), just months before the global financial crash (unfortunate) and the UK smoking ban (predictable), paying £142m in a competitive bid. The deal was consequently over priced, over leveraged and carrying significant but glibly dismissed regulatory risk. While the ownership period cannot be considered to be in any way value creative, that a stable and profitable business is being sold at an attractive multiple (12x headline historical EBITDA), is

Tatts bought Talarius in February 2007 with Macquarie (exited), just months before the global financial crash (unfortunate) and the UK smoking ban (predictable), paying £142m in a competitive bid. The deal was consequently over priced, over leveraged and carrying significant but glibly dismissed regulatory risk. While the ownership period cannot be considered to be in any way value creative, that a stable and profitable business is being sold at an attractive multiple (12x headline historical EBITDA), is testament to Talarius’s operations management and Tatts’s patience. In terms of Tatts’s trading in Australia, while lottery performance looks impressive (+8.7%), wagering volumes were a more lacklustre +4.2% on a materially reduced gross margin (down 1.2ppts to 14.8%); FY NPAT guidance is therefore to come in at the bottom end of analysts expectations (AUS$255-265m).

Novomatic has further strengthened its UK presence, which accounted for 8.7% of total revenue in 2015 (€182m of €2,086m), including from 80 AGCs – Novomatic’s GB AGC share therefore increases to 16% by licence. The overall sector should probably also take heart that a UK deal by a very much pan-European business was not derailed by Brexit. Separately, Novomatic has very much parked a tank on Tatts lawn, with the AUS$500m (£280m) acquisition of 53% of Ainsworh now very much likely to go through (shareholders approved on Monday, regulatory approvals pending).