July 7 (Bloomberg) -- Shares of Tattersall's Ltd., Australia's biggest lottery operator, rose 12 percent on their first day of trading as investors sought a stake in an industry that has provided better returns than other consumer-related companies.

The stock closed at $3.46, up from the A$3.10 institutional investors paid in the initial public offering. The Melbourne-based company raised A$300 million ($222 million) after selling a 14 percent stake in the IPO.

Gambling companies Tabcorp Holdings Ltd. and Unitab Ltd. have outperformed the benchmark ASX/200 Index since the start of 2004 as takeovers fueled growth in Australia's A$15.3 billion-a-year gaming industry. Tattersall's ended 120 years of private ownership to help maintain its monopoly to run lotteries in Victoria state by making its finances more open to public scrutiny.

The ``perceived stability of earnings'' from gaming companies is supporting demand for the stock, said James Holt, who oversees the equivalent of $4 billion at Zurich Financial Services AG in Sydney. ``The only risks is in keeping its licenses, which should be reduced by virtue of becoming a publicly listed company.''

Shares of Melbourne-based Tabcorp, Australia's biggest gambling company, have returned 59 percent, including dividends, the past 18 months, three times the S&P/ASX Consumer Index, which includes retailers David Jones Ltd. and Harvey Norman Holdings Ltd.

Shares of Brisbane-based Unitab, which Tattersall's leapfrogged to become the second-biggest gaming company on the Australian Stock Exchange, have returned 138 percent since the start of 2004.

Founder's Will

Per capita gambling in Australia rose 5.4 percent in 2003, according to the latest figures from the Tasmanian Gaming Commission, outpacing economic growth of 3.3 percent that year.

The stock rose as high as A$3.62. A total 126.2 million shares were traded today, more than the 100 million shares sold in the IPO.

Tattersall's owners, mostly descendents of people named in the will of founder George Adams, got 600 million of the 700 million shares on issue. The descendents of Adams' beneficiaries dominate the top 20 shareholders, with William Adams holding the largest stake of 3.7 percent, worth A$90 million at today's closing price.

Retail investors got 550 shares each at A$2.90 apiece. The retail portion of the offer closed five days early after the company was swamped with applications for stock. Only residents of the four Australian states and territories where Tattersall's has business got stock. People in New South Wales, the country's most populous state, missed out.

Goldman Sachs JBWere Pty and Macquarie Bank Ltd., Australia's largest-listed investment bank, managed the share sale.

Index Investors

With a market value of A$2.42 billion, Tattersall's ranks as Australia's 74th largest company, prompting investors who track the S&P/ASX 200 Index to buy the stock on anticipation it will be added to the benchmark.

``Some people try to front-run the index and get stock ahead of its inclusion,'' said Sean Fenton, who helps manage the equivalent of $650 million at Jenkins Investment Management in Sydney. ``We will have to see what sort of weighting it gets in the index given the scarcity of stock.''

At A$3.46 a share, Tattersall's is priced at 19 times forecast 2006 net income of A$127.5 million. Shares of Tabcorp trade at 17.8 times forecast fiscal 2006 earnings of A$462.2 million, according to the average of eight analysts surveyed by Thomson Financial.

Lottery License

Becoming a publicly listed company may help Tattersall's keep its monopoly license to run lotteries in Victoria, Australia's second-most populous state, by opening its ownership structure and finances to public scrutiny.

The license Tattersall's has held for 50 years to run the Victorian lottery expires in 2007, and the state government has said Tabcorp and other rivals may bid for it.

Becoming publicly traded will make it easier to raise money, pursue growth, obtain gaming licenses and ``most importantly, it broadens Tattersall's shareholder base,'' Chief Executive Duncan Fischer said in a statement today.

The company operates Tattslotto in Victoria, Tasmania, the Australian Capital Territory and the Northern Territory, and sells tickets in those states in the nationwide OzLotto and Powerball. More than half of Melbourne's adult population buys a Tattslotto ticket at least once a year.

Licenses held by Tattersall's and Melbourne-based Tabcorp to operate Victoria's 27,500 slot machines expire in 2012. Tattersall's has more than 260 gaming venues in Victoria, which generate 90 percent of earnings.

To contact the reporters on this story: Robert Fenner in Sydney rfenner@bloomberg.net; Ambereen Choudhury at achoudhury@bloomberg.net

Last Updated: July 7, 2005 02:36 EDT