Shares in the two main high-street bookmakers fell more than 10% on Monday, following a report in The Sunday Times over the weekend that the Government was set to reduce the maximum amount punters can bet on fixed-odds betting terminals (FOBTs) to £2.
William Hill (WMH) and Ladbrokes Coral (LCL) share prices slumped by up to 15% and 13% respectively in morning trading. Online rivals GVC (GVC) and Paddy Power Betfair (PPB) also felt the wrath of investors, slipping 5.6% and 2.7% respectively.
Jim Mullen, chief executive of Ladbrokes Coral, brushed the reports off as yet more "rumour and speculation". "The current call for evidence is yet to conclude and industry responses have not yet been submitted to government," he notes.
FOBTs, dubbed the “crack cocaine” of gambling, have been under fire for a while, with a review, led by new culture secretary Matthew Hancock, announced in October.
Consumers are currently able to place bets of up to £100 every 20 seconds on the machines, which are a huge source of revenues for bookies but have been criticised as being addictive.
The government initially suggested the cap could be anywhere between £2 and £50. Labour’s deputy leader Tom Watson at the time called the outcome “deeply disappointing” and shares reacted positively.
While no formal decision has been made, the review is set to close on Tuesday and an official at the Department for Culture, Media and Sport said a £2 limit was highly likely.
FOBT Cap Could Hit Revenue
Bookmaker representatives have repeatedly claimed the move will impact profits and lead to shop closures and job losses. Analyst estimates on how much each firm would lose have differed. Barclays claimed Ladbrokes Coral would lose £437 million in annual revenue; Davy stockbrokers said Ladbrokes' earnings could fall by 28%; Credit Suisse guessed at 40-50%.
A trading statement last week from William Hill suggesting profits would be better than expected saw shares soar to an 18-month high. But Graham Spooner, investment research analyst at The Share Centre, says the FOBT review has “always been the elephant in the room for the group”.
Elsewhere, GVC’s takeover bid for Ladbrokes Coral in December helped shares in the latter post a four-year high earlier this month.
With a House of Lords committee also due to debate the issue of account closures and restrictions on Tuesday, with a minimum bet rule to be suggested, industry reaction to both will be eagerly awaited.
The Share Centre says it currently rates William Hill a ‘buy’, “due to the potential for further growth in mobile wagers, expansion into overseas markets and the prospect of further efficiencies within the business”. However, due to these regulatory concerns, it recommends the stock for higher-risk investors only.
Which Funds Are Affected?
Standard Life Aberdeen (SLA) are listed as major shareholders in both Ladbrokes Coral and William Hill. Ladbrokes Coral register includes Jupiter and Old Mutual; William Hill’s lists Schroders and Artemis.
The Mercantile Investment Trust (MRC), managed by JPMorgan’s Guy Anderson, was one of the worst hit, with holdings in both companies. It owns around 19 million shares in each, according to Morningstar Direct data.
Schroder’s Income Maximiser and Recovery, which holds a Morningstar Silver Analyst Rating, funds own 25.5 million and 11.3 million shares respectively in William Hill, with Bronze rated Majedie UK Equity owning 19.3 million.
Silver rated Jupiter UK Special Situations owns around 34.3 million shares in Ladbrokes Coral, followed by SLI UK Equity Unconstrained at 29 million and Bronze-rated Fidelity Special Values (FSV) at 24 million.
