View from the City: Investor appetite for gambling firms could increase in 2024
Edison Group’s Russell Pointon explores institutional investors’ appetite for publicly listed gambling firms as he looks ahead to 2024 movements across the globe
As we entered 2024, the main forecasters were predicting that the worst is behind us from a macroeconomic perspective i.e. with respect to the outlook for global growth, and the expectation is that inflation and interest rates have peaked.
For example, in its January 2024 update, the International Monetary Fund pointed to relatively stable expected rates of global growth between 2023, 2024 and 2025, but the expected growth rates for 2024 and 2025 are below the long-term trend. So, while we appear to be out of the woods, the growth outlook is relatively subdued.
Investors were quick to spot the potential change in the outlook, and the downward move in bond yields, which is typically good for valuations, provided a useful support to share prices. Following a pretty challenging Q3 2023, the UK and European casino and gaming sectors enjoyed a better end to the year, outperforming their regional benchmarks.
However, the US sector underperformed the wider market a little. These were part of a generally better performance by the sectors that are geared into improving in consumer spending. Investors were definitely in a forgiving mood as consensus profit estimates for the sector were on a mainly downward trajectory through the end of the year.
Looking ahead to 2024, consensus is expecting a strong year for the sector in terms of profit growth versus 2023, which should make the sector more appealing to investors, so long as those expectations don’t disappoint. We seem to be still at the point where downgrades to profit estimates are rewarded with negative share price moves, life gets really interesting when downgrades are met with a higher share price as this indicates sentiment has bottomed.
If institutional investors are unwilling to buy the sector, the increasing level of M&A in other sectors by corporates and private equity, and FDJ’s offer for Kindred, shows that others may be more willing to do so, especially in an environment of low overall growth and cost of financing.