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Shares in major quoted gambling groups are holding up well considering the UK government has announced its intention to crack down on betting machines dubbed by critics as the ‘crack cocaine’ of the industry.
On Tuesday, ministers released a long-delayed review into the gambling industry which recommends new limits on fixed-odds betting terminals (FOBTs) - betting shop machines offering games such as roulette.
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Yet as Simon Davies of Canaccord Genuity explains: ‘Overall, surprisingly few decisions have been made after a year of deliberation. But the new review does point to a consensual outcome, which reduces the risks to the Retail Betting companies.’
Moore’s bets on airlines and casino companies surged roughly 60 percent in about a week. “I was telling everybody: ‘You got to do stocks. Sign up — it’s easy money right now,” he said. The company’s Chapter 11 filing in Houston listed $4.98 billion in liabilities and $4.19 billion in assets, making it the largest oil and gas producer bankruptcy since 2016.
SIGH OF RELIEF
Vocal anti-gambling campaigners and some MPs have argued the machines disproportionately attract addicts, though the industry begs to differ, unsurprisingly, setting the scene for a high-stakes battle.
Following its review, the Department for Culture, Media and Sport has said the maximum stake on FOBTs should be reduced from from £100 down to £50, £30, £20 or £2. It has set out plans for a 12-week consultation to allow interested parties to make their case as to where the government should settle.
Presently, FOBTs allow punters to place bets of £100 every 20 seconds. They provide the largest source of revenues at some retail bookmakers, including Ladbrokes Coral (LCL), bid up 1p to 126.3p and William Hill (WMH), which ticks 2.7% higher to 259.4p.
FOBTs also generate significant income for Paddy Power Betfair (PPB), failing to join in the rally and off 5p at £76 in early dealings.
As the Financial Times reminds readers, only last month, analysts at Barclays forecast that if the maximum stake was reduced to a paltry £2, Ladbrokes Coral would lose £437m in annual sales from FOBTs, William Hill would kiss goodbye to £288m in annual revenues and Paddy Power Betfair would lose £60m.
FUDGED DECISION?
Canaccord Genuity’s Davies continues: ‘As we expected, the government fudged its decision on the Triennial Review into stakes/prizes for B2 machines and announced a further 12 week consultation which will run to January 23rd.
The only commitment is that maximum stakes will be reduced from £100 to one of four options: £2, £20, £30 and £50. The government will also look at a range of 'social responsibility' measures across all gaming machines, improved player protection in online gaming and a 'package of measures on gambling advertising', all of which are aimed at providing protection for problem (or vulnerable) gamblers.’
But as Davies explains, ‘we still think that a £20 maximum stake is significantly the most likely outcome. And it is one which we believe would be greeted favourably by investors, given the weak share price performances of Ladbrokes and William Hill over the past year.’
Since a £20 maximum stake would have a far more benign impact on earnings for the pair than a £2 maximum stake, Davies views this turn of events ‘as a positive outcome for the industry, given the alternatives. Implementation is now likely in 2019, giving Ladbrokes Coral and William Hill another year of Retail cash flows driving down leverage, so we do not view the dividend of either company as being at risk, and they both offer attractive yields.'
The government has also asked the Gambling Commission to look at whether the 'spin speed' on FOBT games such as roulette should be increased from the current 20 seconds per bet. There will also be a 'package of measures taking effect to strengthen protections around online gambling and gambling advertising' to help protect children.
FURTHER BOON
A further boon for the industry is that there’ll be no review of densities of machines in betting shops, and while it refers to a potential review of spin speeds, this is certainly not an area that has been highlighted.
‘Government has also rejected calls for a relaxation of regulations on other machines - so no rise in machine densities for casinos, which removes a potential positive for Rank (RNK)’, says Davies, though shares in the latter name are unruffled this morning, improving 1.9p to 234p.
Significantly, the Canaccord Genuity scribe also sees a final decision on the Review as ‘sparking a second wave of industry consolidation in which Ladbrokes Coral and William Hill look like inevitable participants.’
Ladbrokes Coral remains Canaccord Genuity’s ‘preferred play, on valuation grounds', the broker having a 165p target price for the company.
Related news
Video games aren’t just for pale, sweaty nerds these days—they’re played by people from all walks of life, and they’re being played more than ever before.
Since the era of Pong and Atari, video games have risen from a tiny niche to one of the biggest sectors in the entertainment industry. Tech analytics company Digi-Capital estimates that global revenues from video game hardware and software could soar to $235 billion by 2022.
Naturally, these eye-popping figures also offer the opportunity for savvy investors to win big over the next several years. But what are the best gaming stocks to buy?
Are Gaming Stocks Worth Buying?
New Technology
Video games stand to benefit from technological developments like few other industries, making them a highly appealing option in the digital age.
Advances like virtual reality and augmented reality and better graphics cards allow users to fully immerse themselves in the game. Other new trends such as facial recognition, voice recognition, and gesture control provide a more interesting and interactive gaming experience.
Massive Growth Potential
With smartphones in billions of people’s hands around the world, everyone is a potential gamer. The rise of esports and video game streamers on platforms such as YouTube and Twitch show that people enjoy not only playing games, but watching and talking about them as well.
Video game companies that produce a captivating product can expect to win a loyal fan base, reaping additional revenue in the form of downloadable content (DLC), merchandise, expansion packs, and sequels.
Unpredictability
Like the film industry, the fate of a video game company often rises and falls on the success of its most recent releases—or even a single flagship product. Without the inside scoop on the development process, it’s sometimes difficult to ascertain how well a company’s next game will perform.
For example, Electronic Arts’ new video game Anthem hoped to capitalize on the popularity of recent multiplayer shooters such as Fortnite, Overwatch, and Apex Legends. However, since its release Anthem has mainly received middling and critical reviews, causing a significant setback for Electronic Arts [NASDAQ: EA].
Potential Regulation
The prospect of regulation constantly looms large over the video game industry. Chinese firm Tencent, the largest gaming company in the world, saw its shares plunge in August after China temporarily froze its approval process for new gaming licenses.
Even in the United States, there are recurring calls for regulation of violent imagery in video games, most recently by President Donald Trump.
There is also growing interest in regulating “microtransactions,” which are a business model that offers players advantages and better experiences in exchange for a small sum of money.
Is Activision Blizzard A Buy?
Activision Blizzard [NASDAQ: ATVI] hasn’t been having the greatest time lately. Although year-over-year revenues grew by 7% in 2018, the company’s stock also dropped by 26% in the same time period.
It’s little surprise, then, that the company laid off 800 employees in February, a full 8% of its workforce.
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According to a report by Polygon, the Blizzard side of the business has no new major releases coming in 2019. The Activision side has also seen a slowdown, projecting fewer sales in 2019 than the previous year.
Despite the recent bad news, the restructuring at Activision Blizzard [NASDAQ: ATVI] may not be indicative of the company’s long-term outlook.
Most large enterprises in the video game industry go through similar events. However, would-be investors should certainly watch how engaged Activision Blizzard’s player base is with the company’s current and upcoming releases.
Should You Invest In Electronic Arts?
Electronic Arts [NASDAQ: EA] is another video game company that had a disappointing 2018, with shares cratering by 25%.
The recent flop of Anthem is another bad omen for the company, especially its BioWare division.
The good news for Electronic Arts [NASDAQ: EA], however, is that its recent Apex Legends title has been an unexpected smash hit, despite the lack of any announcement or marketing.
In the immediate future, Apex Legends should be able to pick up the slack where Anthem has failed. Reliable cash cows, such as the sports franchises FIFA and Madden NFL, should also keep the company on its feet.
Shares In Gambling Companies Uk
NetEase: Buy or Sell?
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For investors looking abroad, NetEase [NASDAQ: NTES] is an intriguing choice.
NetEase [NASDAQ: NTES] is a Chinese Internet technology company that operates versions of Blizzard Entertainment games such as World of Warcraft, StarCraft II, and Overwatch for the Chinese market.
The company also produces its own games, such as the Westward Journey series.
Like Tencent, NetEase was affected by China’s gaming license freeze in August, with shares diving by roughly 20%.
However, the company has missed several recent investor expectations, and needs to demonstrate solid results in the near future.
As a spot of good news, NetEase subsidiary Kaola is set to merge with Amazon’s Chinese import subsidiary in the near future.
The Best Gaming Stocks To Buy: The Bottom Line
Activision Blizzard [NASDAQ: ATVI] is currently going through a patch of instability, making it a risky investment prospect for conservative-minded investors.
EA stock has been rallying since the start of the year, and could be a good choice for a quick buck but there are long-term concerns about the company’s performance.
The prospects of NetEase stock are negatively affected by the recent license freeze and concerns about a general slowdown in the Chinese economy. Like its partner Activision Blizzard, NetEase remains a risky buy.
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