View from the City: Dramatic falls in US-exposed stocks while M&A still rife
Richard Stuber, director, travel and leisure research for Numis, analyses turbulent US stocks and continuing M&A activity
Have investors fallen out of love with the US? Since the repeal of PASPA, the US has been seen as the nirvana for gambling companies; a deep, fast-growing regulating market with a passion for gambling. Losses had been largely inconsequential; indeed it could be argued that in recent years the greater the losses, the higher the (revenue) multiple applied by investors.
However, we have seen a quite rapid change in sentiment with material ‘corrections’ for US-exposed stocks: Flutter has fallen c.30% and DraftKings has dived 35%. Comments from the New York licence applicants tell the story, ranging from DraftKings’ CEO “it’s not about the money” to MGM’s CEO “not a market that you want to miss out on” to Penn’s CEO calling New York a “margin killer”.
Subsequently we have witnessed Wynn scaling back losses with its CEO saying: “Competitors are spending too much to get customers.” And if that was not enough to caution investors, the Dumbo in the room (Disney) may look to enter the market through ESPN.
So what next? Will gambling companies look to deploy capital elsewhere for better returns? It certainly looks that way, potentially. M&A is very much still in vogue with Flutter acquiring UK-based tombola for £402m and Entain reportedly eyeing Olympic Entertainment for £1bn while tussling with, among others, Flutter for the Western Australian TAB business.
Meanwhile, spare a thought for the humble equity analyst who is losing gambling companies to cover. Over the last 12 months, William Hill and Gamesys have been acquired and Playtech looks to be on its way out. Thankfully DraftKings walked away from Entain but will MGM make another approach? It’s certainly not a dull sector to follow and I, for one, hope that there will still be companies left to cover after this round of M&A is complete.