View from the City: Awaiting the long-overdue white paper and challenger brand disruption
Richard Stuber, director for travel and leisure research at Numis, assesses the latest mood and movements in the market
Will this finally be the month the Gambling Act 2005 white paper is published? While we think it is likely to reset UK profitability, it should at least provide some much-needed earnings visibility and may be the catalyst needed to revive share prices in the sector.
Despite knowing the broad scope, the specifics remain unknown. They could include a maximum online slots stake, limits on monthly deposits and/or specific restrictions surrounding marketing and customer incentives.
All of the listed operators have already begun to show a willingness to pre-empt potential measures, for example limiting online slot stakes to £10 or £20, but given the precedent from the shocking FOBT stake reduction in 2019 (£2 versus market consensus of £20), we should not be too blasé. Indeed, the UK regulatory backdrop was one of the reasons for the £150m-£250m reduction in the William Hill sale price renegotiated by 888 last month.
Companies with geographical exposure have performed better over the last three months, although we still haven’t seen a change in sentiment in the US (Flutter -25%, 888 -25% and Entain -4%). DraftKings shares are at two-year lows and nearly 80% off the highs achieved last summer, despite a capital markets day that seemed desperate to show the validity of its strategy.
Change and disruption also bring opportunity and new entrants. In the US, it is notable that DAZN, led by ex-Entain CEO Shay Segev, is trying to establish itself as a challenger betting brand, recruiting a number of industry executives.
On the other side of the world, Matt Tripp, the serial gambling entrepreneur, will launch a new brand in Australia with a consortium including News Corp, BetMakers and Tekkorp, thus showing that with the right team and proposition, this industry still offers opportunities for attractive returns