(Bloomberg) -- William Hill Plc led a slump in U.K. bookmakers’ share prices on Tuesday as investors braced for the worst-possible outcome to a government review of fixed-odds betting terminals (FOBTs), and fretted that more increases in gaming taxes might be on the way.
A Times newspaper report that the U.K. Treasury has accepted a cut in the maximum FOBT stake to 2 pounds ($2.80) means the market is likely to start pricing in such an outcome, Davy analyst David Jennings said in a note. Investors may be equally concerned by suggestions that any tax shortfall resulting from the move could be offset by gaming tax increases elsewhere, he wrote.
William Hill shares fell as much as 15 percent in London, while GVC Holdings Plc also sank following its recent takeover of bookmaker Ladbrokes Coral Plc. A decline in Paddy Power Betfair Plc was more muted, reflecting the company’s lesser reliance on betting shops.
DAVY (David Jennings)
- A cut in the FOBT staking limit to 2 pounds would shrink William Hill’s Ebitda by 25%, GVC’s by 18% and Paddy Power Betfair’s by 3%
- Likely that the market will start pricing in a 2-pound outcome
- Investors may start to wonder whether changes to point of consumption (POC) tax could be on the cards
- Were POC tax on gaming products to be increased to 25%, impact would be 6% on William Hill, 5% on GVC and 4% on Paddy Power Betfair
- Such talk “feels premature” and it may be that the government will try to source tax revenue from other parts of the gaming industry
GOODBODY (Gavin Kelleher)
- William Hill is the most exposed operator to a reduction in the maximum FOBT stake to 2 pounds
- Group Ebitda would fall about 42% before any mitigation from shop closures
- About 3,000 shop closures would occur and after year three this would see the group Ebitda impact reduce to about 15%
- For GVC, Ebitda would be hit by GBP220m before any mitigation from shop closures and GBP110m after year three of shop closure mitigation
- Notes that, at 2 pounds, GVC pays nothing to former Ladbrokes Coral shareholders under a contingent payment arrangement
- For Paddy Power Betfair, Ebitda impact would be 6% from a 2-pound stake, or -1% after year three, given shop-closure mitigation
- Key issue now is what the government does to make up any estimated shortfall in machine-duty revenue
MORGAN STANLEY (Ed Young)
- Scenario laid out in The Times report could imply a 27% downgrade to William Hill EPS estimates, and 11% to those for Paddy Power Betfair
- A 2-pound maximum FOBT stake would imply an 18% hit to William Hill EPS and 3% to Paddy Power Betfair
- Additional hit of 8% to Paddy Power Betfair EPS and 9% to William Hill should government impose levy on online income to make up tax shortfall
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