morgan stanley city opinion of today

please DYOR, this post is not meant for ramping TTS, just the opinion of a leading broking house. i remain to hold TTS.

Tatts Group Ltd
Waiting on the Lotto Draw
Tatts (TTS) 1H10 NPAT of $144.1m was flat on pcp and our estimate of
$143.6m. The dividend of 10cps, was in line with the pcp. The result was
impacted by weak gaming revenues and costs related to new regulations in
Victoria, competitive pressures in the Wagering Division and losses in the UK.
Lotteries were the standout, as expected, but 2H10 comps will be tough.
We revise our earnings to reflect the restructuring of UK Gaming, lower
depreciation and amortisation in Victorian Gaming than we had forecast and
lower interest costs. We make no material changes to operating earnings in each
division. Core EPS moves up by 2-3% in FY10e to FY12e.
2H sales growth rates in Gaming and Wagering should be stronger than those
seen in 1H, but earnings should be seasonally softer. Lotteries growth comps will
be tough given the 2H pcp was boosted by a $106m OzLotto jackpot.
TTS faces a major inflection point in the next few weeks with the decision on
NSW Lotteries. Should TTS be successful, and acquire the License at the $500-
600m that the market seems to expect, we see material longer-term upside
through its Lotteries division. Lotteries are extremely low-risk annuity style
operations that can support a fully debt funded bid. If TTS wins on these terms,
the stock is a conviction Buy. If TTS is unsuccessful the market will likely react
quite negatively. Any weakness should be seen as a buying opportunity. TTS
strong cashflows from its low-risk gaming businesses warrant a premium multiple
over peers in the sector. If a meaningful acquisition can't be located, TTS's
balance sheet would support more active capital management. Our target price
remains at $2.50.