View from the City: how the online winning streak ended with news of a vaccine
Richard Stuber, director of travel and leisure research at Numis, suggests positive signs remain despite a share price downturn
Online gambling stocks have been the clear winners this year, with UK-listed operators up 40% versus the FTSE All-Share down 15%. Like all winning streaks, this reversed in November as positive news on a Covid vaccine sought investors to switch to the relative vaccine winners, including offline operators such as Rank.
Despite the relative share price reversal, fundamentals and newsflow have remained positive, with Flutter’s Q3 trading update (revenue +30%) and GVC’s raised full year guidance (+5%); investors were particularly pleased that despite the return of retail, momentum in online gambling was maintained.
Interest remains heavily skewed to the US; investors asking if the leading operators can be caught up, what the challengers are doing to make up ground and for those with minimal exposure, what they plan to do it about it. The size of the opportunity keeps on getting bigger ($20bn, $30bn, $50bn?), which is helpful when attempting to justify some of the share prices, such as DraftKings trading on 16x FY 2022 sales. The US Presidential Election helped – not just the £1.2bn matched on Betfair’s exchange for the next president market – but also three more states passed legislation to regulate sports betting.
Focus on the US will likely stay for some time, but a more near-term pre-occupation has returned, namely UK regulation. With the Gambling Act review kicking off shortly there is every expectation that UK earnings will be under pressure. The question is what form these restrictions will take shape and whether the regulator and the government will heed warnings from overzealous international regulators, which have not only encouraged channelisation but also failed to protect the customer. Fortunately, the industry appears to be getting its act together with a more collegiate approach.
RG now seems to be something companies are paying more than lip service to and no-one could have failed to see all the initiatives launched by major operators during Safer Gambling Week. Let’s hope 2021 turns out to be an altogether Safer (Gambling) Year.