bwin.party joins sector share buyback

bwin.party is to buy back up to €75m in shares and issue a dividend of €30m, the third London-listed egaming company this month to announce plans to return cash to shareholders as sector stocks continue to fall amid regulatory uncertainty.

The operator announced in its pre-close trading update it would seek approval at its AGM today to buy back up to €75m in shares over the next 12 months and pay a dividend in two instalments of €15m in October 2011 and May 2012. “This policy reflects the strong cash-flow characteristics and long-term earnings potential of the group whilst retaining sufficient resources to fund ongoing operating requirements and continued investment for long-term growth,” said the company.

Betfair also announced yesterday at its maiden annual results presentation that it would look to repurchase £50m in shares over the next 12 months and pay a dividend of 5.9p per share. Outgoing CEO David Yu said in the investor call that this policy reflected how Betfair was “confident in its ability to fund future investment needs while also returning cash to customers.” The company had cash reserves of £155m as of 30 April. Betfair’s announcement came the day after Playtech commenced the first phase of its share buyback aimed at protecting long-term investors.

Analyst Nick Batram of Peel Hunt said these moves by the three companies reflected “weak investor sentiment” towards the sector. “Investors used to look forward to regulation, now they are frightened of the short term impacts, the issues and uncertainty. If you look at the volatility of share prices on a daily basis, people don’t know what to make of it. Some people won’t hold gaming stock as they are morally opposed, while for others it’s too volatile and exposed to regulation, and they don’t want to accept that volatility and risk. But this will change as the market rediscovers its appetite for risk.”

Batram added that although the buyback, dividend and Ongame sale all represented positive news for investors in bwin.party, “[T]he reality is that all eyes are on the ECJ in a few weeks time”. On 18 July the ECJ is scheduled to deliver its verdict on the compliance with EU law of German proposals for a restrictive opening of the online sports betting market to private operators based on a 16.66% turnover tax.

With bwin.party generating 23% of combined revenues from the territory in 2010, the week following the announcement of the German proposals saw the newly listed operator’s stock dip 34% below float price, before the events of Black Friday stabilised the fall.

Leading gambling data business H2 Gambling Capital has also projected a regulated market in Germany would only capture 7% of total egaming activity in the territory should it proceed with the restrictive opening for sports betting proposed in April.