The key trend in the UK gambling world is that the regulatory environment is getting tougher. A heavily delayed government white paper on reforms to the industry is now expected in the coming months, which has the industry giants fretting. At the gambling reform rally in March, digital economy minister Chris Philp said that “we know that the gambling landscape does need reform – significant reforms – as it is now significantly different from the last time our gambling laws were comprehensively reviewed some 17 years ago”.
What this will mean in practice is yet to be revealed in detail (there are rumours about restrictions on advertising, sponsorship, and deposit limits), but it is highly unlikely to be good news for the sector. Broker Numis said that Rank (RNK) is “best placed” to deal with the white paper while 888 (888) is “most exposed” due to the material significance of the UK online market to the company.
The FTSE 350 gambling stocks are certainly already expending energy – and lots of cash – on trying to adjust to a more difficult landscape, even before the direction of future government policy is revealed. But they aren’t always getting it right. 888 was fined £9.4mn by the UK Gambling Commission in March for social responsibility and money laundering failures, with the regulator criticising several examples of company negligence around source of funds checks. This came after a £7.8mn fine in 2017 for failing to protect vulnerable customers. More such examples are likely across the sector as the UK regulatory position continues to harden.
The situation is also challenging in Europe. This means that companies are increasingly turning their attention to new overseas markets for growth opportunities. The North American market is continuing to open up: Playtech (PTEC), Entain (ENT), and Flutter Entertainment (FLTR) are companies for which North American expansion is a key part of growth strategies, and the success or failures of their operations there could prove to be make or break moments for their prospects.
Playtech has had new licenses granted across the US, from Pennsylvania to Mississippi. In the company’s latest financial year, Americas revenue grew by 64 per cent on a constant currency basis to €101mn (£85mn). Entain owns one half of BetMGM, a US sports betting company joint venture. Flutter controls the US business FanDuel – this is a market leader in online sportsbook, taking 40 per cent of the market in the fourth quarter of the company’s latest financial year. Both BetMGM and FanDuel are expected to hit profitability in 2023.
The sector has also been busy with M&A, and there are a couple of potentially transformative acquisitions – completed and in progress – to keep an eye on. Flutter bought Italian online gaming market leader Sisal back in December for £1.62bn, which is estimated to take its share of the online gaming market there to about a fifth. After the UK, Italy is the next largest regulated gambling market in Europe, and one of the more liberal in its regulatory approach.
888’s shares, meanwhile, have recently regained some lost ground following an update on its acquisition of the non-US assets of William Hill, which is expected to complete in June. The company said that new deal terms had been agreed, with the valuation cut down from £2.2bn to £1.95bn-£2.05bn, and the cash due at completion reduced by £250mn to £585mn. The company also placed 71mn shares to part-fund the acquisition rather than its previous plan of issuing £500mn of new equity.
| NAME | Price (p) | Market cap (£mn) | 12-month (%) | Fwd PE | Yield (%) | Last IC View |
| 888 | 196 | 874 | -52.0% | 10 | 2.9 | Hold, 194p, 09 Mar 2022 |
| Flutter Entertainment | 8,370 | 14,711 | -43.0% | 27 | 1.1 | Hold, 11,690p, 23 Dec 2021 |
| Entain | 1,539 | 9,051 | -7.0% | 19 | 1.1 | Hold, 1,598p, 03 Mar 2022 |
| Playtech | 570 | 1,746 | 26.0% | 20 | 0.8 | Buy, 448p, 24 Sep 2021 |
| Rank Group | 117 | 548 | -38.0% | 16 | 0.4 | Hold, 151p, 27 Jan 2022 |
| Source: FactSet |
