View from the City

It has been another busy month for the egaming sector, with a raft of results announcements and plenty of news. Investors remain encouraged by the prospect of further industry consolidation (Paddy Power Betfair’s CEO described this as “likely, if not inevitable”) and the potential legalisation of sports betting in the US sports (decision expected in May/June). The America Gaming Association estimates the illegal US sports betting market is worth $150bn in wagers per annum.

In aggregate, our UK (plus Stars Group) universe was up 3%, against a UK Mid Cap index up by 1.3% in the month from 15 February; strip out Rank and Paddy Power and it was up by 6%.

FY17 financial performances were generally in line with expectations. But Paddy Power (-7%) talked of a £10m FX hit to profits, and £20m of additional spend on marketing/customer retention, after a period of weak performance in gaming – and this weighed on the shares. Rank (-8%) was hit by the unexpected departure of its well-liked CEO Henry Birch. Playtech (0.0%) produced a weak current trading statement (tough comps, soft Asia), but this was anticipated in a deep discount valuation.

On a more positive tack, Stars Group (+12%) responded well to its CrownBet/William Hill Australia acquisitions – more consolidation in a year when we expect much more. GVC (+7%) were the stand-out operational performer (+16% LfL growth going into Q1), although investor focus remains on the Ladbrokes Coral deal. William Hill produced good results, but no surprises – in itself a considerable improvement on recent updates. The shares were flat in the month, but after a strong run. 888 and Jackpotjoy were also out-performers, anticipating positive messages from their forthcoming results, although both stocks dipped on earnings.

Cheltenham was tough (but finished better), but the World Cup offers the prospect of increased volumes/new customers. Despite the constant shadow of regulatory pressure, the industry looks to be in robust health.