UPDATE 2-Tabcorp H1 profit dips; shares up on cost controls

(Adds detail, analyst comment, shares)

By Ben Wilson

SYDNEY, Feb 21 (Reuters) - Australian gaming group Tabcorp Holdings Ltd (TAH.AX) posted a 3 percent dip in first-half profit, hit by an outbreak of horse flu, but its shares rose more than 7 percent as analysts welcomed progress on cost controls.

Tabcorp, which owns Sydney's Star City casino, TAB wagering and Keno games, said a company effort to contain costs was starting to show benefits, but warned of potential tougher trading conditions ahead due to the general economic climate.

"We're now six months into the turnaround of the company and we are on track," said Chief Executive Elmer Funke Kupper, a former banking executive who took over at Tabcorp last year after the previous head was dumped following poor earnings.

"The fact that we are on track is not fully reflected in our results as a result of equine influenza hitting us early in the first half," he told a briefing.

Tabcorp said it was wary of a slowdown in the United States and interest rate rises in Australia, but said it so far had not seen any impact on the Australian consumer.

Revenues had been affected by the horse flu outbreak that decimated racing in many parts of Australia last year, and by smoking bans in New South Wales state. Funke Kupper said the impact from equine influenza was expected to be relatively modest in the second half as racing had resumed earlier than expected.

He said the flu outbreak would hit Tabcorp's 2008 earnings before interest and tax by around A$20 million, less than it first thought, but declined to give specific full-year guidance for the annual result.

"Tabcorp will benefit from the recovery from smoking bans and equine influenza during the 2009 financial year," he said in a statement.

Tabcorp shares were up 7.4 percent at A$15 by 0235 GMT, ahead of a 1 percent rise in the benchmark index .AXJO.

Analysts said the company had done well in a difficult environment.

"To produce a result this strong and with cost growth that was contained was obviously an improvement on what the market was expecting," said Craig Shepherd, analyst at CommSec.

"Cost control was probably better than expected and that was a lingering concern based on the last couple of halves' results," said Shepherd, who also pointed to Tabcorp's 22 percent rise in reported net profit.

Normalised net profit, which assumes a theoretical win rate in the company's casinos, was A$261.9 million ($240.3 million) from A$270.3 million a year earlier. Three analysts on average expected a normalised profit of around A$251 million.

Normalised net operating revenue for July-December edged down 0.3 percent to A$1.99 billion. ($1=A$1.09) (Editing Ian Geoghegan)