Bookmakers plunge on fixed-odds betting report

Suggestions in the weekend press that new Culture Minister Matt Hancock will slash the maximum stake on fixed-odds betting machines to £2 hit shares in bookmakers on Monday.

A government consultation on whether to cut the maximum stakes that punters can make in the machines from £100 to between £2 and £50 is due to report its results on Tuesday. Fixed-odds betting terminals have come to be known as the 'crack cocaine' of high street gambling due to their addictive nature.

Hancock, who has previously budded the machines a “social blight”, is expected to reduce the maximum stake to £2, the Sunday Times reported, after finding “overwhelming” public support for the lowest possible stake.

Shares in Ladbrokes Coral and William Hill, which make millions of pounds a year from the machines, each dropped around 13% on Monday morning.

However, said analyst Greg Johnson at Shore Capital, given the government’s request for more information it would have fair to assume that the outcome was likely to be evidence based.

"Therefore with the consultation period due to end Tuesday the article appears a little presumptuous," he said.

Later on Monday morning Ladbrokes issues a statement noting the speculation on the outcome of the triennial review consultation, with chief executive Jim Mullen saying the 15 months that the review has been running has seen "constant rumour and speculation about potential outcomes, of which this is yet more".

"It should be noted that the current call for evidence is yet to conclude and industry responses have not yet been submitted to Government," he said.

He reiterated the industry's view that cutting stakes will result in betting shop closures, will "fail to adequately address any issue of problem gambling", and result in "a significant reduction in the level of funding for horse racing".

ShoreCap's Johnson said the Ladbrokes share price appeared to have been discounting a £10-plus stake limit, due to the conditions of its proposed takeover by GVC Holdings.

Adjusting for the likely impact from a £10 limit, the analyst calculated the enlarged entity would be valued 16 times 2018 forecast pro-forma earnings per share, falling to 12 times included stated synergies from the GVC deal in 2019 and 10 times 2020 if including expected growth and full synergy realisation.

For William Hill, applying similar metrics would impact 2018 forecast EPS by circa 7p per share and at the current price of 335p per share would leave the stock on 19 times 2018 earnings.