GAMBLING SECTOR - INVESTMENT OVERVIEW (from Hargreves Lansdown)
The gambling sector is racing ahead in 2012 as operators enjoy improved earnings and investors speculate over developments with online regulation. It is one of the strongest sub-sectors within the Travel & leisure segment which itself is comfortably beating the FTSE All-Share this year, rising 10.4% against the benchmark index's 4.8% gain.
There is good reason to suggest momentum will be sustained in the sub-sector. There are two major events on the horizon, namely the UEFA 2012 European Football championships and the London Olympics, which should be catalysts for increased sports betting. There is continued hope the US will make its first move towards re-opening the market for online gambling. Important regulatory decisions are also expected in the near future from Germany.
Reflecting the nature of gambling, the sector is not without risks. Operating in newly-regulated territories will push up costs as investment in marketing is needed and there is the prospect of higher tax bills, too. Most of the sector constituents have strong balance sheets and enjoy high operating margins, so they should be able to deal with these financial pressures. Long-term gain easily outweighs short-term pain with regulated online markets.
Investors should not expect smooth earnings growth, nor for all operators to enjoy a free ride as regulation is rolled out. Once the risks are acknowledged, there is no doubt that online gambling is on the cusp of its next growth phase so buy the sector.
Our favourite picks are best-in-class operators William Hill (WMH) and Paddy Power (PAP). We also believe it is prudent to buy Probability (PBTY) as mobile gambling is growing fast in popularity, which bodes well for its earnings growth.
Regulation and legislation provide much needed clarity for the online gambling sector. Operators know what taxes they have to pay and that they can operate legally in certain jurisdictions. This removes any fears operators could receive hefty fines and be shut down if deemed to be operating illegally.
There are several countries which should see regulatory developments around online gambling in the near future. Speculation and then confirmation of new rules will be significant share price catalysts (both positive and negative) for many stocks in the gambling sector.
The big events will be developments in Germany and the US. We also expect more transparency on licences in Spain to attract market attention. Changes are expected in Greece, with the finalisation of an online gambling bill, although this may not happen immediately because there are more pressing economic issues to resolve following the weekend's general election (6 May).
A treaty was signed in December 2011 by 15 of the 16 states in Germany, which allowed for 20 sports betting licences with 5% tax on turnover. The rogue exception is Schleswig-Holstein. It introduced its own online gambling legislation to permit a broader range of products including casino and poker, as well as a 20% gross profit tax. Betfair (BET) was awarded the first licence last week (3 May) and Bwin.Party (BPTY) is seen to be next in line. Small cap casino-to-sports betting provider GVC (GVC) says it will soon apply for a licence. The European Commission has approved the Schleswig-Holstein regime but has yet to clear the proposal from the other 15 states. Analysts reckon there should be greater visibility on regulation later this year.
Bwin.Party has the biggest exposure among UK-quoted gamblers to Germany where it generates 22% of revenue. Stockbroker Peel Hunt questions whether it is worth Bwin.Party operating in the country if Germany decides to outlaw casino and poker and only allows online sports betting. It says the market growth potential for onshore sports betting is not large when shared out between 20 potential licences. The stockbroker sees benefit to Bwin.Party in Schleswig-Holstein's approach which facilitates a wider range of online products. The market would need to increase by 25% to cover the additional tax costs. Peel Hunt says this should be achievable and it expects operators to maintain - if not increase - current levels of German profitability. Other operators in the country include Sportingbet (SBT).
Land of the free
Six years after the US got tough with online gambling activities, the market is primed to re-open. Progress has been slow at the Federal level, yet state level legislation looks far more encouraging where Nevada has already approved online gambling regulation. New Jersey is the favourite to be the next state to introduce online legislation, displacing California which continues to dither. Political disputes put a halt in February to Washington DC's roll-out plan.
Some gambling stocks have already racked up healthy gains as investors have reacted to developments in the US. The sector enjoyed a rally in December 2011 when the US Department of Justice (DoJ) said the 1961 Wire Act was aimed at sports betting and not casinos or poker. This was viewed by the market as removing a major potential barrier for US states seeking to introduce online gambling. The DoJ had previously argued, based on its interpretation of the Wire Act, US states should not allow online gambling even for bets placed within their borders.
Stockbroker Panmure Gordon says the DoJ's clarification on the Wire Act is significant for three reasons:
It assumes intra-state online bingo, poker, lottery and casino are allowed, where appropriate state regulations permit.
It provides the foundations for allowing these products on an inter-state basis.
It removes the US legacy risk for companies which operated casino and poker websites in the US before October 2006's Unlawful Internet Gambling Enforcement Act.
Pre-merger with Bwin, PartyGaming struck a $105 million settlement (April 2009) with the US authorities that freed the company from the risk of prosecution. Sportingbet agreed in September 2010 to pay $33 million to settle its US investigation over alleged illegal internet gambling.
Analysts rate 888 (888), Bwin.Party and Playtech (PTEC) - which is strictly speaking a software company - as best placed to benefit from the opening up of the US market.
The Dragonfish subsidiary of 888 has been declared suitable by the Nevada Gaming authorities to operate in the US state. January's extension by 888 of a licence agreement with Caesars Interactive Entertainment from the UK into the USA means it will power a selection of CIE's poker brands once online gaming is permitted. Despite this pole position status, 888's Chief Executive Officer Brian Mattingley told reporters at last month's trading update (24 April) he was very cautious about the US market and wanted to concentrate on territories 888 knew would open. Nonetheless, 888 is in the licence application process for Nevada and, since the Caesars deal is non-exclusive, talks are underway with other relevant partners regarding potential opportunities in America.
The Spanish online gambling market is forecast to grow by 50% over the next five years. Licences were due to be issued in the first quarter of 2012 but are now expected towards June. Spain is not expected to suffer the problems seen in France which was originally loss making for many companies when it opened up the market in 2010. "France's first attempt at online gaming legislation has not been a great success," says Peel Hunt. Sports betting turnover fell by 23% in the second half of 2011 on the previous year. There are lots of administrative burdens and restrictions, taxes are high and the market is being dominated by unregulated operators. Microgame and Titanbet have both quit the French market this year, following Ladbrokes (LAD) which exited in October 2010 blaming excessive taxes.
Closer to home, regulatory developments continue to shape the UK industry. The government announced in March's Budget plans to tax online gambling operators at the location in which a bet is placed, rather than where the betting provider is based. This will affect companies including William Hill whose online operations run out of offshore tax haven Gibraltar. It is not an immediate threat as the tax change is not due to start until December 2014 and the timing and proposed 15% rate are subject to further consultation, so delays are possible.
More of a concern is the 20% machines games duty from February 2013. This will have the biggest impact on William Hill, Ladbrokes and Paddy Power which are the dominant players on the high-street, where the machines are situated.
This chain on regulations, taxes and local timetables may sound confusing but there is no need to be put off from looking at the sector. Gambling stocks tend to be highly cash generative and, no matter how hard the economic times, consumers still like to have a flutter on sports events, the lottery or games like poker and casino.
Anyone buying shares in Paddy Power three years ago would have since made more than four times their money. There is no sign of the share price momentum losing steam. Europe and South America-focussed GVC pays a whopping 10.6% dividend yield as a way of best using its spare cash.
Takeover activity is also expected to be a growing trend, particularly once the US market re-opens. Bwin.Party has been subject of bid rumours on numerous occasions. Ladbrokes has sniffed around both 888 and Sportingbet. While neither deal went through, the former company is clearly seeking acquisitions and the latter two remain bid targets for other industry players.
Next-generation gaming machines have been an important contributor to operators' earnings in the past few years. Mobile devices are likely to be the next driver, as they entice consumers to bet 'on the go', whether they are in the pub watching sports, commuting via public transport or even eating their lunch at work. The surge in popularity of smartphones and tablets, such as the iPad, has given consumers a vehicle to gamble anywhere, anytime, anyplace. Now they have dipped their toe in to the water with primitive services, leisure companies like bookmakers have started to roll out sophisticated, yet easy-to-use mobile offerings.
Paddy Power revealed in its full-year results (5 March) that mobile accounted for 25% of total sportsbook stakes in 2011. In February this year, 49% of its online sportsbook customers transacted via mobile. It is adding new features including live picture streaming, virtual racing and customer help pages. For gaming products, Paddy Power says mobile as a proportion of total online games revenue went from 1% in January 2011 to 10% in December 2011.
William Hill says 190,000 downloads were made of its new sportsbook mobile app between February and April, and 30% of these customers were new to the company. Ladbrokes has seen the proportion of online sportsbook bets rise via mobile from 15% in the fourth quarter of 2011 to 20% in the first three months of 2012. A new mobile platform launch is imminent.
The rise in mobile usage should accelerate growth of 'in-play' betting. This is the ability to bet on a race or sports match while it is still taking place. A research report by GamblingData in September 2011 cites anecdotal evidence from the largest online operators which says in-play customers gamble more money and more often than traditional bettors.
Even the smaller operators are seeing mobile boost transaction amounts. NetPlay TV (NPT) tells Shares Magazine customers migrating from its internet to mobile-based service are spending more money. And tablet customers look to be better prospects than smartphone customers because the larger screen size is more appealing to online gambling. Relative to the iPhone, NetPlay is seeing a higher conversion rate of users via its iPad service as they progress from a £10 free bet for being a new customer to placing actual wagers.
The Euro 2012 football championship in June should be a significant trigger for increased bets including in-play activity. Sports fans are likely to make the most of the opportunity to bet mid-game via mobile devices while watching a match with friends either at home or in the pub.
GVC Chief Executive Officer Kenneth Alexander reckons the UEFA tournament will be a much bigger driver for betting volumes than the Olympics, because sports betting is dominated by football. The event not only helps to fill the traditional summer gap in the football season, but it also has the benefit of matches taking place at accessible hours for UK punters as there is not the time difference which restricted access to watching games experienced with the South Korea and Japan-hosted 2002 FIFA World Cup.
Last edited by munk; 10/05/2012 at 14:53.
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Buy: Paddy Power (PAP)
On a hot streak
Thursday 10 May 2012
There is no loyalty in the world of gambling, so having great marketing is paramount to success. Paddy Power (PAP) is arguably the king of self-promotion and this is reflected in stellar earnings growth, share price performance and geographical expansion. Do not be put off by the high rating - it trades on 21 times forecast 2012 earnings. This is wholly deserved as Paddy Power is a premium operator. The balance sheet is debt free. It achieves high margins and a forecast return on sales of 21.6% for 2012 provides plenty of money to reinvest in the business. Earnings and dividend growth have consistently been achieved over the past five years, despite the costs incurred to expand the business. Paddy Power is making headway in Australia, France and Canada and will this year make its Italian debut. Irish stockbroker Davy reckons the shares will rise to €53 by March 2013. It says there are several 'material' growth opportunities for Paddy Power. These include further growth of the core online business, driven by mobile and new games developments. It sees progress in Australia, aided by an improved technology platform and the replication of successful marketing techniques used in Europe. It also believes Paddy Power can expand its business-to-business arm to build on gains seen in France and Canada. The cherry on top would be favourable regulatory changes in Australia and potential expansion into the US where it has applied for a licence in Nevada.
Buy: Probability (PBTY)
Playing the odds
Thursday 10 May 2012
Mobile gambling is taking off in a big way and mobile specialist Probability (PBTY) is an excellent way to play this trend. 90% per cent of its revenue comes from consumer-facing games, mainly through its LadyLucks brand. It also has a white label service for clients including William Hill (WMH), Paddy Power (PAP), Rank (RNK) and Ladbrokes (LAD). Probability has become an established player in the UK-focused mobile gambling scene and is now exploring opportunities in the Americas. It is providing software for Mexico-based Caliente, one of the largest gambling operators in South America, which will launch once there is regulatory approval. The £20.4 million cap is applying for a licence to supply technology to gambling operators in Nevada. Acquiring customers comes at a cost, which is why analysts downgraded profit forecasts at last month's trading update (26 April). It is a highly competitive marketplace, so lots of money must be spent on marketing to get noticed by consumers. Probability says it takes five to six months to get a return on its investment in television advertising. It is worth the effort as Probability says the last quarter of its financial year (ending 31 March) broke previous records for player deposits, turnover and business to business revenues. House broker Daniel Stewart has a 132p price target, implying 74% upside.
Buy: William Hill (WMH)
Ready to hit the jackpot
Thursday 10 May 2012
Trading is better than expected at Britain's largest bookmaker. William Hill's (WMH) first-quarter net revenue surpassed market forecasts after the bookie cleaned up on football results and its gaming machines. This prompted analysts to nudge up earnings forecasts and fuelled the share price momentum. The big issue to now address is the bookmaker's relationship with online business partner Playtech. The bookmaker has a call option to buy out Playtech's (PTEC) 29% stake in William Hill Online in October 2013. Talks are underway to potentially end their joint venture at an earlier date with a decision expected by the end of the summer. The partnership was established in 2008 but the two parties have since clashed over strategy, resulting in 300 members of staff going on strike last year. Analysts expect William Hill to buy out Playtech but retain the software company's services. Such a conclusion is likely to have a positive impact on the share price. It could also trigger other corporate activities. William Hill tried to acquire Probability last year but walked away in November. Rumours suggested the deal was scuppered by Hill's relationship with Playtech which has its own mobile interests and saw a conflict of interest. With a potential divorce from Playtech on the cards, William Hill could soon be making another call to Probability.
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24WinBet no longer in operation, accounts transferred to Jetbull.
Don't hate the player, hate the game!
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I think all these merges into Jetbull are reducing my limits proportionally
Originally Posted by DoctorGonzo
Remember, Remember the 04th of November 2010 – the day Interwetten died
Remember, Remember the 24th of March 2012, the day TGT won the Scoop6!
AllYouBet sportsbook closure
AYB closing down their sports betting... no timescale given though [edit: seems to be with immediate effect].
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Last edited by DoctorGonzo; 29/05/2012 at 17:08.
Don't hate the player, hate the game!
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sad to see AYB go. i liked them.
Sportingbet have removed all charges for deposits (previously a fee of £1 was levied on deposits under £250).
Last edited by Sliphod; 06/06/2012 at 21:15.
Ladbrokes sacks betting-odds boss following investigation - Yahoo! Finance UK
Ladbrokes (Other OTC: LDBKF.PK - news) has sacked one of its most senior managers, head of liabilities Jon Thompson, on charges of internal misconduct, raising questions in the City over the bookmaker's structure.
Mr Thompson, whose responsibilities included overseeing Ladbrokes' betting odds, had been at the company just over a year after joining from online bookie Bodog.
He has several weeks to appeal the decision, which has also seen another member of staff suspended pending an internal investigation.
Ladbrokes would not disclose the circumstances around Mr Thompson's departure but senior betting industry sources said there had been rumours for some time about his proximity to several of the company's biggest punters.
A spokesman for Ladbrokes said the incident was a company matter and the police were not involved.
The spokesman said: "Jon Thompson has been dismissed and one other member of staff has been suspended.
"It is not a criminal matter, it is a procedural matter."
Simon French, an analyst at Panmure Gordon, said Mr Thompson's departure was "clearly disappointing news", adding that the affair called "into question the structure of the business."
Another analyst said: "It makes them look at the least very stupid."
One senior industry source said Mr Thompson had been a surprise appointment when he moved across to Ladbrokes from Antigua-based Bodog in February 2011.
In an interview published on the recruitment website RP Jobs last August, Mr Thompson said working at Ladbrokes was a "complete culture change from the beaches of Antigua".
When asked about his relationship with Ladbrokes chief executive, Richard Glynn, Mr Thompson described him as a "vibrant character who requires a fortnightly trading update from me".
Mr Thompson, who gave his age as 43, went on: "He's shaking things up and is keen on trading tools like those employed in the City, which involve elements such as predictive algorithmic patterning".
He said he owned a half-share in a two-year-old filly called Pink Evie and described himself as a Norwich City fan.
Mr Glynn has faced pressure in the City over Ladbrokes' digital performance which has paled compared to that of its rivals, in particular William Hill (Other OTC: WIMHF.PK - news) .
Ladbrokes opted to develop its online business internally after walking away from takeover bids for online gaming companies 888 Holdings and Sportingbet (LSE: SBT.L - news) last year.
Mr Glynn said in February he believed the online operation would deliver profit growth in the second half of this year as the benefits of a £50m investment in the division filter through.
The popularity of betting machines helped the bookie to post an 8.9pc increase in first-quarter net revenue in April. Group operating profit in the first quarter rose 3.9pc to £50.4m.
Ladbrokes shares closed up 4.6 at 168.6p
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Turf Bookmakers : About Us
A bit about our company
Thanks for visiting Turfbookmakers.com, we have recently sold our shops to Betfred and are now offering betting services via Betfred!
Our aim is to provide the best betting and gaming experience for our customers in a comfortable and relaxed atmosphere now online rather than in the shops!!
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