Gaming stocks report this week. Here’s where UBS stands ahead of results

UBS bank outlined its expectations for three ASX-listed gaming and casino stocks on Monday. 

Three analysts worked on the research note in question: Andre Fromyhr, and associate analysts Krasni Shrivastava and James Russell. 

The analysts awarded these price targets on the following stocks:

• Star Entertainment Group (ASX: SGR): BUY. Price target of $1.95 (Reports Thursday 23 February)

• Tabcorp Holdings (ASX: TAH): BUY. Price target of $1.05 (Reports Tuesday 21 February) 

• The Lottery Corporation (ASX: TLC): BUY. Price target of $5.70(Reports Thursday 23 February)

Aristocrat Leisure (ASX: ALL) was briefly mentioned in Monday’s note, but was left out by Analysts as far as estimates and projections are concerned—however, UBS has a BUY rating on ALL, too.

As far as gaming stocks go as a basket, UBS’ analyst team is clearly bullish. 

Business environment considerations 

Looking outside of casinos in particular, UBS’ analysts noted lottery activity is increasing in Australia based on recent data (separate to that pending in TLC’s first-half report on Thursday).

Lottery revenues in 1H23 revenue are up 13% vs. 1HFY22. 

Across the sector broadly, online channel share remains structurally higher than it was during pre-COVID. Conversely, gross digital gaming revenues have slowed following COVID peaks with lockdowns removed. 

In wagering, betting activity picked up in the December quarter, also replicating a greater digital mix above pre-COVID levels (but still accounting for the overall slowdown in digital gaming revenues). 

Analysts noted Sportsbet still holds the first place for wagering app downloads (36% share) with the TAB app following one length behind at second place (19% share). 

Star Entertainment Group (SGR) 

UBS is expecting SGR’s first-half revenues to reflect $998m, reflecting a 72% increase vs. 1HFY22.  But UBS’ estimates are lower than a consensus read for $1.01bn. 

Pointing to existing guidance, analysts highlighted expectations for underlying EBITDA of $195-205m in the 1H23 report “excluding provisions for fines and one-off legal costs.” 

• Analysts also highlighted a “non-cash impairment to the NSW business in the range of $400m-$1.6bn in 1H23.” 

• UBS further expects the Queens Wharf Brisbane (QWB) Project costs to sit at approximately $2.9bn. 

• Analysts will be watching for updates from AUSTRAC proceedings, progress and guidance on the development of QWB, opex inflation and post-COVID margins, and capital position. 

SGR's one year chart

Tabcorp Holdings (TAH) 

UBS is expecting TAH’s first-half revenues to come in at around  $1.24bn, reflecting an 8% increase vs. 1HFY22. But UBS’ estimates are lower than a consensus read of $1.27bn. 

Pointing to existing guidance, analysts reiterated expectations for FY23 capex “up to $150m.” 

• Analysts also noted they expect a growth in costs between 3-4% over FY22 levels. 

• Analysts will be watching for recovery of retail gaming revenues post-COVID, whether TAB’s digital market share in gaming apps is growing (including the impact of September’s new app), and updates on TAB’s progress towards acquisition of a VIC retail wagering licence. 

TAH's one year chart

The Lottery Corporation (TLC)

UBS is expecting TLC’s first-half revenues to reflect $1.98bn, an 11% increase vs. 1HFY22. This is the only UBS internal estimate actually above consensus in the stocks covered on Monday, with consensus lower at $1.87bn. 

• No existing guidance was provided by the company in its latest report for analysts to use. 

• The team at UBS will be watching guidance on trading activity for 2HFY23, Lottery Corporation’s rate of digital penetration and impact to margins, cash position updates and further clarity on the progress of TLC’s acquisition of a VIC lotteries licence and renewal. 

• UBS projects NPAT growth of 9% vs. 1HFY22 ($198m vs. $182m)

TLC's one year chart