Relief for bookies over gambling machines reports

Shares in bookmakers Ladbrokes Coral and William Hill galloped higher on Monday after reports that they will avoid the worst scenarios envisaged from the government's triennial review on fixed-odds betting terminals.

As it stands, punters can bet up to £100 every 20 seconds on these electronic casino games, with the triennial review potentially had already decided to cut the upper limit to £50 but was mulling a further cut to the maximum stake that punters can bet to £20, £10 or even £2.

But the Gambling Commission published its advice on Monday, recommending the maximum stakes should be cut to £30 or below on non-slot games such as roulette, which represent 90% of B2 revenues, while slots games should see maximum stakes reduced to £2. The commission also recommended a trial on "tracked play", where players would have to pre-register, across all B1, B2 and B3 machines.

In January, reports emerged that new culture minister Matt Hancock would slash the maximum stake to £2 hit shares across the machines, likened to the 'crack cocaine' of high street gambling due to their addictive nature. Hancock has previously called the machines a “social blight”.

Shares in Ladbrokes Coral, which has agreed to a merger with GVC Holdings, rose 2.2% on Monday. Under GVC's 167p offer, in the case of a max £20 stake, LCL shareholders would be due to receive an extra 30p.

Although the commission's review is not the final decision, which rests with the Department for Digital, Culture, Media & Sport, it appears, said analyst Neil Wilson at ETX Capital, as if ministers will "blink first".

"Although the market had decided a £2 flat cap was looking less likely, the fact the Gambling Commission has left ministers with an easy out for a £30 is perhaps even better than hoped for," Wilson said.

"The government of course still has to decide whether to act on these recommendations or go for a lower cap. Given competing pressures for the DCMS (tax revenue), it would seem likely that it will follow the report and go for a £30 cap, although it may need to await the response from campaigners and MPs who back lower limits to test the water, as it were, as to the best course of action."

While the government does not have to follow the regulator's advice, noted broker Canaccord, "it would be unlikely to take a significantly contrarian view" and so it saw the most likely outcome as a reduction in max stakes on non-slots B2 content to £20, which would point to a blended max stake cut from £100 to £18.40.

The broker said the impact of 'tracked play' was "harder to predict" as if introduced on all FOBT content "would also have a detrimental impact on revenues" but viewed the overall commission statement as positive news both LCL and William Hill.

On LCL's takeover offer from GVC, the commission's recommendation points to an extra CVR value potentially a little lower than the 30p that would be paid if the FOBT maximum stake is limited to £20. "The GVC offer had implicitly estimated the LCL EBITDA impact of a £2 max stake at £140m, reducing to a £97m hit at £20 - in both cases, after taking mitigating actions (ie shop closures)," Canaccord said, with Hill's impact around 45% lower.

The big players may take a hit, however, said Mike Van Dulken at Accendo Markets, but through their power of marketing ingenuity and ability to innovate is quite likely to make up for, if not offset, the loss.

He noted that Paddy Power Betfair is the odd one out of the three London-listed bookies, having been vocal about more severe curbs, "suggesting the segment is less important for it".