The gambler's perennial optimism has been on show in the gaming sector. Following massive share price falls in the past 12 months, investors have been betting that the bad news - weak consumer demand and rising operating costs - are already fully priced into the valuations of gaming stocks with the sector seeing sharp bounces in the past couple of months.
There is also a glimmer of hope that a line is being drawn under the unspecified liabilities hanging over the online gaming sector due to potential litigation from the US Department of Justice (DoJ). This stems from the moves of one of the founders of PartyGaming, and its biggest shareholder, Anurag Dikshit, to settle with the DoJ, pleading guilty to a charge involving illegal internet gambling and agreeing to pay $300m (£200m) to US authorities.
However, investors' optimism may be ill placed as trading conditions look set to deteriorate further, and the gaming sector is not immune to lower consumer spending, as is evidenced both in the UK and offshore. In October, one of the scions of the industry, American Sheldon Adelson, poured $475m of his family's money into his casino empire to keep its doors open. His company owns a majority holding in Las Vegas Sands, whose assets include the Venetian and the Palazzo on the Strip. He has also been pouring billions into the Singapore and Maccau gaming operations.
In the UK, the smoking ban continues to weigh heavily on the industry's growth prospects, while companies are facing refinancing issues, too. Ladbrokes is carrying a debt burden of over £1bn, of which £378m is a Eurobond that is due to be refinanced in July. Another company with refinancing issues is William Hill. The market has been encouraged by trading statements showing earnings resilience as well as a deal with Playtech to create a larger internet offering. But overhanging the stock price is just over £1bn of net borrowings, dure to be repaid in 16 months. Casino operator Rank, which also own online bookmaker Blue Square, has been suffering, too, as the business has been hit by the loss of lucrative gaming machines from its clubs and by higher casino taxes.
Online gaming outfit 888 Holdings has had its share of problems, too. When the US was effectively banning online gaming in 2006, over half its business disappeared overnight. Since then, 888 has been busy playing catch-up, transforming itself into a business-to-business operator with the aim of generating half its profits from this area in a couple of years. This involves commercialising its content and infrastructure by offering these to other gaming providers.
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