Kindred, Sweden and the battle between operators and analysts

Kindred Group CEO Henrik Tjärnström faced up to some disgruntled analysts yesterday after the Stockholm-listed operator reported a 27% decrease in EBITDA for Q2 2019.

Second quarter profit dropped to £30.4m, causing Kindred’s share price to plummet by almost 20% in early trading Wednesday morning. The drop-off was once again blamed on Sweden’s re-regulated market, which has caused the country’s gambling operators significant problems since new legislation went live in January. For Kindred, Q2 EBITDA contribution from Sweden dropped by £9.2m year-on-year, accounting for 82% of the total EBITDA decrease during the reporting period.

The analysts in attendance at Kindred Group’s Q2 investor call suggested they could have received a starker warning from the operator over its Swedish struggles, leading to a terse exchange. One analyst asked: “The stock is down 20% now and it seems like this was much more in line with your own internal expectations about it being an odd year without the World Cup. In general terms, what should we expect going forwards? You can’t be pleased with this result?”

There is an obvious mismatch between not sending out an PW, and the stock being -20% on the report. What levels of % in the red can be expected by the management on the report, before they PW? I guess they expected down 5-7%, not more. https://t.co/VMixha2rrV

— OrakelO (@Orakel_O) July 24, 2019

Tjärnström insisted the overall Swedish market being down 20% year-on-year was very unusual for a re-regulated territory, with the firm basing its expectations on its experience in Denmark. “Of course you can’t be pleased when the numbers are down as much as they are and while we did have higher expectations internally, that is what the numbers came out at,” Tjärnström said.

The exec also echoed other operators in warning that the black market could be growing at the expense of regulated operators. “In Sweden, if the market is coming down instead of growing, there could be warning signs that channelisation is negatively impacted which could be dangerous for the system in the long term,” Tjärnström said.

“In our expectation, the re-regulation in Sweden is not a one or two quarter event. It might take years until we are back to the same level of profitability, just as we saw in Denmark,” he added. “We take on board that we could have been clearer in communicating that previously, but I did mention that we are building the business for the long-term rather than just the next quarter.”

https://twitter.com/gamblinglamb/status/1153974531054346247?s=20

Tjärnström also moved to reassure analysts that performance should improve as the operator drifts away from the corresponding period of the 2018 World Cup. He also suggested 2020 should bring less upheaval from a regulatory perspective.

The chief exec added: “We expect the impact of Sweden re-regulation to tail off over time and the portfolio we have across markets will help us absorb that better, especially into 2020. We hope that will be a calm year from a regulatory point of view and that margins will pick back up to where they used to be.”

The exec was also pressed about lower player values, as one analyst asked: “We know about the lower player value in Q1, but is this the same in Q2 with little to no recovery at all?”

The usually unflappable Tjärnström replied: “That is the consensus we got from looking at our numbers. The segment of players has been impacted and we haven’t seen much recovery. That isn’t so strange during a low activity quarter, but overall we are still a bit surprised that the reduction has been at the level that it is.”

How long will it be until subpar performance in Sweden ceases to be a surprise?