Investors are scrambling to exit UK gambling firms such as William Hill (WMH) and GVC (GVC) amid media reports the max stake on fixed-odds betting terminals (FOBTs) will be cut to £2 a spin.
Shares in William Hill tumbled 11.5% to 296.2p and GVC, which recently acquired Ladbrokes Coral, shed 5.8% to 915p. Paddy Power Betfair (PPB) was also down 3.5% at £70.65.
Last month, gambling stocks enjoyed an uplift after the Gambling Commission’s review into FOBTs was not as bad as expected. The commission reported stakes should be cut to £30 or below in a bid to help reduce dangerous losses for problem gamblers.
FOBT A BIG DRIVER OF PROFIT
FOBTs are a vital source of profits for bookmakers, as the casino games and computer simulated races generate very strong margins.
It seems the tide may have turned. Secretary of state for the Department for Culture, Media and Sport, Matthew Hancock, may opt for a £2 maximum stake with the support of the Treasury, according to reports.
Davy Research analyst David Jennings speculates a £2 staking limit could hit William Hill the most, with earnings before interest, depreciation and amortisation (EBITDA) expected to fall 25%.
GVC is anticipated to suffer an 18% drop in EBITDA if the new stake is implemented, while Paddy Power Betfair’s earnings could be impacted by 3%.
POTENTIAL DOUBLE WHAMMY
Media reports also suggest the UK government could claw back any shortfalls in tax from the change by increasing point of consumption taxes online to 25%, up from 15%.
Jennings believes this would deliver an additional earnings hit to William Hill of 6% and GVC of 5%, while the impact to Paddy Power Betfair earnings would be 4%.
The analyst is not convinced the point of consumption tax will be hiked though, arguing it feels ‘premature’ and the government may try to source tax revenue elsewhere in the industry.
