FTSE 350: The web is closing in on gamblers

Just two weeks into the new year, the UK’s Gambling Commission announced a ban on using credit cards to gamble. The move is not expected to have much effect on the sector – indeed, a big impact on trading could imply a group’s screening practices were in need of improvement – but it is significant for what it implies about the direction of travel for gambling regulation in the UK. 

In the statement announcing the ban, Culture Minister Helen Whately noted: “There is more to do,” adding that the government would be launching a nationwide addiction strategy in the year, as well as reviewing the Gambling Act to ensure it is fit for purpose as online gambling grows. Late last year an all-party parliamentary group released a report calling for a limit on stakes and prizes for online gambling, alongside improved affordability checks.

There is speculation that gambling may become the purview of the Department of Health in an upcoming Westminster reshuffle, moving away from the Department for Digital, Culture, Media and Sport. Each department brings with it a particular focus, and Peel Hunt noted the move to Health “probably implies a further restriction on UK revenue as protecting people from harm takes even greater priority over: 1) permitting people to gamble; and 2) gambling operator profitability”.

The upshot of this looks likely to be a continued shift away from the UK high street towards online and international trading. Flutter (FLTR), GVC and William Hill have all trumpeted their growth in the US, where the Supreme Court struck down laws to prevent betting on sports in mid-2018. In January, William Hill upped guidance for its US business, saying it expects to break even in its 2019 results, compared with a previous range of -£20m-£0 in the year. 888 (888), meanwhile, has highlighted the US as its focus for the coming year.

Investors will be keeping a close eye on the progress of Flutter and Rank (RNK), which are working to integrate their acquisitions of Canadian online betting operator Stars Group and online gaming group Stride Gaming, respectively. 

Flutter’s £9.8bn deal will turn it into the world’s largest betting group in terms of sales when it is completed around the middle of the year. Looking beyond 2020, management expects it to deliver pre-tax cost synergies of £140m each year, alongside lowered finance costs and cross-selling potential. Management has said efficiencies will come over three years, with run-rate phasing of £25m, £115m and then £140m over the period, and “at least” 50 per cent accretion to underlying EPS in the first full financial year after completion.

The scales involved in the Stride Gaming deal are much smaller, but the acquisition will beef up Rank’s online offering – crucial to management’s plans to develop its digital capabilities – and is expected to generate annual synergies of £13m or more within three years of completion. 

Playtech (PTEC) ended 2019 by downgrading adjusted cash profit guidance to “a little below” expectations after trading turned challenging in Tradetech, its trading platform. Management is weighing up its options for the business, and in the meantime has signed an agreement with Colombia-based Aquila Global, strengthening its operations in Latin America.