Gaming's Going To The Dogs
Sydney Morning Herald
Friday March 30, 2001
As Tabcorp faces pressure on and offline, TAB might prove the best defensive option.
Just when TAB looked as if it had escaped the political risk which has dogged southern counterpart Tabcorp, the Federal Government threw a spanner in the works this week.
The proposal to ban Australian companies from offering online gaming to residents could cost TAB $17 million worth of bets its Web site is expected to take this financial year. Analysts do caution, though, that the proposed legislation would have a limited impact on earnings in the short term.
Unable to place bets online, punters are likely to pick up the phone, or wander down to the local TAB.
However, as the Internet is TAB's cheapest distribution channel, its bottom line will take a hit if the legislation is passed by the Senate in its present form. That said, the law that hits the streets is expected to exclude sports wagering operators.
Online casino operators aren't expected to be so lucky.
Under that scenario, Tabcorp stands to lose the most, as it won't be able to offer casino-style products online as planned. But Tabcorp faces a far bigger threat from the $4,000 poker machine levy proposed by the Bracks Government to help fund a cut in payroll tax.
Punters looking for the best paying horse in the sector should scratch the nag from down south and back the home State as the best defensive option. Tabcorp fell 12c to $9.12 , while TAB fell 1c to $3.22.
Telstra takes charge
Telstra's decision to send its mobile boss Dick Simpson up to Hong Kong to spearhead the company's Asian expansion signals that Telstra will no longer use Richard Li's PCCW to expand in the region.
Simpson's brief is also to get Telstra into China but before he does that there is a small matter he could clear up the ownership of Singapore mobile carrier M1.
M1 is 30 per cent-owned by Great Eastern, which in turn is 51 per cent-owned by Britain's Cable & Wireless plc and 49 per cent by PCCW. Things have changed, however.
PCCW is no longer focused on mobiles, and Cable & Wireless plc is likely to become a shareholder in M1's rival SingTel as part of the sale of its Optus stake. The thought has cropped up in both camps that it could be time to sell to Telstra. In turn, that would leave Telstra and SingTel to go head to head in each other's main market. Telstra's Singaporean partner, Keppel Group, already owns 35 per cent of M1 and is thought to be predisposed towards Telstra increasing its presence in M1.
Brambles clue
A greater degree of confidence is emanating from the Brambles bunker that a way can be found through the maze of tax issues barring the industrial services merger with GKN plc.
Perhaps the most heartening sign is the company putting on hold a global search to find a chief executive to replace John Fletcher, who leaves in early July. The move suggests Brambles expects the GKN deal to proceed, as part of the transaction involves GKN's Sir C.K. Chow taking up the reins at Brambles.
At the same time, talk has died down about the fallback plan GKN is working on, should the deal fall apart. Brambles shares ended 65c lower at $44.65.
David Jones suffers
David Jones chairman Dick Warburton increased his stake in the retailer by another 10,000 shares earlier this week but, then, investors aren't exactly clinging to the stock.
Some large earnings downgrades have pulled the rug from underneath David Jones' shares in the past week. Some brokers have clipped as much as 30 per cent from the upmarket department store chain's projected full year net profit and 15 per cent for the next year.
It is hardly surprising then that David Jones' shares are trading around nine-month lows, having dropped 10 per cent since the issue last week of its half-year earnings started all the trouble.
The quality of the earnings wasn't all it could have been, with the $30.3 million net profit relying on gains from the sale and lease-back of property and a lower tax bill. The other worry was the company's start-up food and online businesses, which will incur about $11 million of new costs in the first year of operation.
Disappointingly, that cancels out the $8 million or so David Jones expects to save in the first year of a three-year $24 million cost-cutting drive. The fear is that as the concepts expand, they'll absorb the added savings and leave DJs treading water.
Shares in the company ended 2c weaker at $1.13.
Futures on the march
Investors are braced for a volatile sharemarket session today as the expiry of the March Share Price Index equity futures contract follows in the footsteps of yesterday's options expiry.
Traders have suggested that there is still a massive $500 million to $750 million worth of stock sitting on the big banks' arbitrage books.
In this case, the banks (think typical arbitrage player BNP Paribas) are long stock and short futures.
While others in the market disagree about the size of the figure, those arb positions, whatever they are, still have to be unwound and the market will be hit by heavier than usual selling in shares.
If this futures expiry coincides with yet another sharp downturn on Wall Street, dealers warn that the local sharemarket could be hit hard.
© 2001 Sydney Morning Herald