View from the City: US concerns hits PPB, WMH
Numis analyst Richard Stuber rounds up the market movement in the last month including major corrections for William Hill and PPB as uncertainty over US expansion creeps in
Despite the US currently representing less than 10% of any UK-listed operator’s revenue, this is where the majority of investors’ focus has been. The initial excitement and fanfare of major US deals and partnerships has been met with the stark realisation that early start-up losses are inevitable.
Over the last month, William Hill (share price -13%) and Paddy Power Betfair (-17%) have seen their shares drift, as first William Hill guided the market to c$50-60m of start-up costs and then Paddy Power Betfair guided to losses from its US division for the second half.
There is no clear consensus as to which strategy will ultimately prove the most successful, whether it is a JV structure with a major partner (GVC/MGM), buying a brand with a multi-state presence (Paddy Power Betfair/FanDuel) or retaining all the equity and establishing multiple relationships with land-based licensees to gain market access (William Hill).
Investors will keep a close eye on developments over the next few months as New Jersey goes mobile and other states progress with the practicalities of deregulation. Aside from the US, regulatory change continues to cause meaningful headaches. UK-facing operators are seeing headwinds from introducing responsible gambling measures (JPJ, -5%) and KYC checks (William Hill). In Italy, the proposed restrictions on marketing may necessitate changes to strategy (PPB and Playtech).
Of the big three operators, only GVC’s share price is (just) in positive territory, but this was mainly driven from another outstanding quarter, with online revenues +20% yoy and an expectation of upgrades to full year earnings forecasts.
Playtech (+9%), after a calamitous Asia-led profit warning in June has begun to attract investors again, although remains firmly in value-territory. Whilst we have had more clarity on some of the major regulatory decisions hanging over the sector in recent months (Triennial Review and PASPA), the timing and end-game remains far from certain, at least for now.