Profits warnings at FTSE-listed gambling firms were at their highest point in over a decade through 2018, according to a new report from EY. And with more regulation coming for the world’s most mature market, GBGC’s Warwick Bartlett notes valuations have been making their way south too.
The Gambling companies issued nine profit warnings in 2018, according to EY’s latest Profit Warnings Report – up more than fourfold, from just two in 2017.
Most warnings relate to online gaming and the pressure from increased pressure and regulation, said the auditor, which added that nine in 12 months represents the highest number of profit warnings for the UK’s betting and gaming sector in over a decade
The increase contributed to the FTSE Travel & Leisure sector issuing 12 profit warnings, their highest annual total of warnings last year since 2002 – even behind the ailing General Retailers sector which issued eight, and the seven posted by Software & Computer Services.
Notably, most of the warnings for FTSE Gambling companies in 2018 related to online gambling, which has grown rapidly – especially in Asia – on the back of higher disposable incomes, faster internet speeds and improved mobile handsets. Grant Humphrey, Betting and Gaming lead at EY, said that while consumer demand for betting and gaming has increased in the last year, “suppressed domestic spending and increasing regulation and international competition has led to some companies in this sector revising down their forecasts.
“The industry will particularly need to take stock of the impact of regulation and reassess their business models and strategy to build resilience for the long-term,” he added.
Much more is still to come for UK policy and regulation this year. Stakes on fixed-odd betting terminals will fall from £100 to a maximum of £2 in April – joined simultaneously by an increase in taxes on online casinos of six percent. A ban on advertising during live sports has also been voluntarily agreed by the sector, in response to rising public pressure. The embargo is due to take effect from this summer.
Analysts at consultancy firm GBGC also noted a falling in valuations among FTSE-listed gaming companies – citing the above regulatory changes and the Gambling Commission’s heightened resolve to issue seven figure fines to firms in breach of AML and problem gambling obligations.
“All of this has taken its toll on the capital values of the companies,” wrote GBGC’s CEO, Warwick Bartlett.“
“GVC Holdings entered the FTSE and was listed in 78th position on 4 September 2018. At the time of writing GVC is now 97th – a fall of 19 places.”
“This means that the other companies in the index have generally done better and so have the industries in which they trade. It is not only GVC. William Hill is now number 210. I recall them sitting at 94 when David Harding was the ChiefExecutive. PaddyPowerBet- fair was ranked 64 on 27 February 2018 and now it is 82nd, a drop of 18 places.”
Given these placings are a result of investors choosing to invest where the returns are greatest, “how a company performs against the rest of the market is a clear indication of where it sits in the wider economy.”
“What makes the investment in gambling worse relative to the market is the FTSE in general has performed badly when compared to the Dow and the S&P 500, the latter being 17 percent higher over three years.
“It is generally acknowledged that the FTSE has been oversold because of the protracted negotiations caused by Brexit and the economic uncertainty caused by it. To perform badly in an index that is performing badly itself is hardly reassuring.”
“There is much talk that gambling companies are making too much profit but when judged against the wider market this is not the case.”