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FTSE 350 Outlook: Gaming operators

Created:
24 January 2008
Written by:
Nathalie Olof-Ors

With the Olympic Games and the Euro 2008 football championships on the horizon, this year will be punctuated by major sporting events. But while the Olympics only represents a small proportion of the money staked in betting shops, bookmakers are unlikely to benefit much from this summer's football tournament either since no team from the British Isles has qualified for the tournament. This means that Ladbrokes and William Hill will have to rely more heavily than usual on horseracing, the industry's core business.

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Arguably, comparatives will be soft on that front. With the flooding across the country in 2007, the sector faced an unusually high number of postponed fixtures last year. So, even in the event of another miserable summer, the scope for disappointment will be relatively limited. And sales could also be boosted by extended opening hours with the implementation of the 2005 Gambling Act. Improvements in technology might also help to accelerate sales, notably by boosting the bookmakers' online activities.

But weaker consumer spending is likely to take its toll on the sector even if bookmakers are traditionally more resilient to an economic downturn than the rest of the High Street. In addition, European expansion in countries like Italy and Spain might not produce the expected return on investment either.

And while revenues will be on the outside track, costs are definitely galloping ahead. On top of higher staff expenses and increased taxation on amusement machines, bookmakers face higher broadcasting fees after signing up with Turf TV to secure the rights to air iconic races at racecourses such as Ascot and Epsom.

But while 2008 might not be an easy year for bookmakers, it could prove even tougher for online gambling operators. Although this sub-sector has recovered quite quickly after the US crackdown on foreign operators, its growth over the last few years has been fuelled by the appeal of poker to a new category of players. But these customers might not be as loyal as the traditional punters who fill the betting shops, and online gambling is likely to be one of this discretionary expenses which are quite easy to cut. So, even though shares in PartyGaming came up trumps last year, largely outperforming the bookmakers, it might not be the card to hold for the 2008 game.

Company name Price (p) Mkt val. (£m) P/E ratio Div. yld (%) 12M price chng.(%) Last IC view
LADBROKES 269.25 1,634 8 5 -40.03 Sell, 316p, 11 Jan 2008
PARTYGAMING 24 960 12.2 0 -13.51 Good Value, 24p, 29 Aug 2007
WILLIAM HILL 371 1,288 7.6 6 -43.7 Fairly Priced, 640p, 26 Sep 2007

MORE FTSE 350 OUTLOOK SECTORS

See also:

Pharmaceuticals & healthcare

Pubs

Food producers

Transport

Real estate

For a full table of contents for the FTSE 350 Outlook series, click here.

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