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Bookies tumble as Treasury said to cede way on FOBTs, eye new levies

(WebFG News) - Shares in bookmakers William Hill and Ladbrokes-Coral owner GVC Holdings took a tumble at the first fence on Tuesday after the government was reported to be ready to back a big reduction in the maximum stake for highly profitable and addictive gambling machines.
Chancellor Philip Hammond is understood to have accepted expert recommendations that stakes for fixed-odd betting terminals should be reduced from £50 to £2, The Times reported.

An across-the-board cut to £2 is worse than the industry had expected after the UK Gambling Commission's 19 March recommendations of a £2 slots stake limit, a £30-or-lower non-slot limit, along with player tracking and limits on both games per session and player.

The new limits could be announced within weeks after the Treasury agreed to cede to the Department for Digital, Culture, Media and Sport, having been wary of making too harsh a cut as the FOBT machines bring in more than £450m a year in taxes.

Levies are expected to rise on other forms of gambling to plug the Teasury shortfall, the report said, which hit Paddy Power Betfair and Grosvenor casino owner Rank.

Paddy Power had guided towards a potential impact in a £2 case of a 33-43% hit to machine revenue.

Based on this, analysts at Morgan Stanley said the midpoint implies the Treasury would be looking to make up around £170m of tax revenue from the £450-500m tax generated by machines, ignoring the impact of potential industry shop closures and mitigation measures.

"If this tax loss were levied on online income to make up the shortfall we estimate it would imply an additional 3.5%-pts of duty on a 15% base," the analysts wrote "We estimate this would be an additional hit to EPS of 8% for Paddy Power Betfair and 9% to William Hill. In this scenario, the UK would still have one of the lowest rates of taxation among European jurisdictions."

Either way, the Times scenario could imply a circa-27% downgrade to Morgan Stanley's William Hill EPS forecasts and around 11% to Paddy Power Betfair.

Shares in William Hill fell more than 14% to 287.21p by 1000 BST, while GVC, which merged with Ladbrokes-Coral at the end of last month, was down 7% to 902p. Paddy Power was down 4% to 7,025.5p, while Rank had recovered from earlier losses to trade almost flat at 172.6p.

Analyst Mike van Dulken at Accendo Markets, noted that the sector's shares had jumped 4% in response to a better than expected outcome from the Gambling Commission last month as there had been fears of a £2 slot and £20 non-slot cap.

"That said, today's share price reactions, whilst punchy, show that it's no sector disaster, and more important for some than others.

"Having previously cut the upper limit from £100 to £50, and then pledged another cut to somewhere between £2 and £50 following discussions with both industry and campaigners, a governmental decision to reduce stake limits to as low as £2 may represent the worst case scenario for the sector segment."