- Treasury could raise up to £3 billion
- 888-owner Evoke most exposed
- Magnitude of tax hike uncertain
Gambling shares were sent reeling after a media report said the government was considering doubling taxes from the sector to raise between £900 million and £3 billion of extra funding.
Shares in 888-owner Evoke (EVOK) led the fallers, dropping by 14%, closely followed by Ladbrokes owner Entain (ENT) down 13% while Paddy Power owner Flutter (FLTR) and casino operator Rank Group (RNK) were down around 7% apiece.
COMPANIES MOST EXPOSED
The different share price reactions reflect the degree of relative exposure to the UK. Berenberg commented: ‘The clear conclusion here is that higher taxes would be most impactful for Evoke both in terms of magnitude but also given its financial position.
‘Despite being the market leader in the UK, owing to its diversification, Flutter would be the least exposed, while Entain would be materially affected, and given its higher levels of leverage could also face a much tighter financial position.’
Analysis by Berenberg suggests an increase in RGD (remote gaming duty) to 25% from the current 21% rate would impact Evoke’s EPS (earnings per share) by a whopping 53%, Entain by 19% and Flutter by 11.6%.
Although the Guardian article hinted at material tax changes of up to 50% based on estimates from think-tanks, Berenberg believes this magnitude seems unlikely.
Such a dramatic change would push Entain’s and Evokes’s UK online businesses into losses and therefore reduce the overall tax take, note the analysts.
HOW SOON COULD IT HAPPEN?
Although the timing of any impact is hard to forecast, Berenberg believes six-to-12months is a reasonable assumption for implementation.
‘We understand gambling tax can be adjusted via secondary legislation circumventing the need for it to be passed by Parliament: this would make any changes announced in the 30 October Budget more likely to come through,’ added Berenberg.
AJ Bell investment director Russ Mould commented: ‘Today’s news is a salient reminder of the strengthening headwinds the sector faces in terms of regulation and tax and that this remains a live risk for investors to consider.
‘It’s notable that the speculation suggests so-called ‘lower harm’ activities like bingo and the lottery will be untouched by any tax changes.
‘The betting industry will argue higher taxes could lead to an increase in illegal black-market gambling and ultimately firms may well pass on any extra costs they incur to punters, potentially doing more harm.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author (Martin Gamble) and the editor (Ian Conway) own shares in AJ Bell.
