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Bwin waits to party

BROKERS' VIEW: After another quarter of weak trading, prospects for a turnaround at Bwin.Party remain fairly distant
November 21, 2013

What's new...

■ Weak third-quarter trading

■ More cost savings to come

■ Regulatory clearance in the US

IC TIP: Sell at 132p

Bwin.Party Digital Entertainment (BPTY) revealed further weak trading this month, with third-quarter sales having tumbled 21 per cent to €146m (£121m). That's mainly because Bwin is deliberately shedding low-yielding customers - although the magnitude of the fall was still greater than analysts had expected, with regulatory problems also playing a role.

The win margin on the company's sportsbook was lower than expected, too, at 9.1 per cent - that came after a series of bad football results for Bwin in September. Meanwhile, casino and games saw a 16 per cent decline in the amounts wagered after Greek authorities blocked the company's internet service provider as part of an ongoing regulatory shakeout. Poker revenues were particularly hard hit, with fewer active players and more onerous regulation within markets where Bwin has a licence. On the positive side, management reckons it can deliver more cost-savings from the business - these should exceed the €70m slated for this financial year.

Moreover, Bwin has now been granted a Transactional Waiver by the State of New Jersey. That means that the company is now eligible to participate in the online gaming market in the state - which is expected to open on 26 November. Bwin is in partnership with Borgata Casino to launch casino and poker games when the online market is up and running there - although losses for the US online business of €5m-€10m are forecast for the next couple of years before reaching breakeven.

Investec Securities says...

Buy. Trading remains difficult after shifting focus from quantity to quality, compounded by regulatory problems in Greece. An initial read of the statement suggests that fourth-quarter trading and cost efficiencies look positive, although we are paring back our estimates to reflect the punitive Greek internet blocking, which could knock 4 per cent from 2013's cash profits. Our buy stance is predicated on the company delivering returns growth from focusing on higher-yielding customers, product enhancement roll-outs (poker and mobile), and in the longer term US upside. The latter looks increasingly likely, although short-term trading has continued to disappoint. Our discounted cash-flow-based price target stands at 150p (cut from 160p) - we expect full-year pre-tax profit of €85.4m and EPS of 9¢.

Numis Securities says...

Buy. The trading statement didn't contain any proof of a turnaround, but there was an optimistic tone from management in the conference call and some positive detail beneath the complicated headline figures also emerged. Real success in the core business depends on the success of largely yet-to-be-issued products and the associated marketing effort. Further details of the plans for the US launch weren't disclosed, either, and management reiterated its guidance for US losses - assuming that the launch goes ahead. But the company is emerging from a turnaround process with encouraging new product launches - there are also signs of this in the performance of the upgraded products. Our price target stands at 200p and we expect full-year EPS of 9.7¢.