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Warming up for a gamble on gambling stocks

By Chris Bailey | Friday 2 November 2018


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Thin old pickings in today's larger cap regulatory news disclosures but I did read a trading update from Anglo-Irish betting company Paddy Power Betfair (PPB) where it bemoaned recent retail store and Australian performance...but loved up online and the US of A. Well quelle surprise. If there is anything I know about gambling sector stocks it is that (1) most are horribly regressive and it is the relatively poor who are the sources of most of the profits and; (2) there is a big switch from retail to online as with many other areas in life…

So morally the space sits with cigarettes, alcohol, defence and related...but that is not the reason I have not really bought stocks in the space historically. With gambling names it is a bit harder to have the visibility that highly branded areas such as tobacco and spirits may offer. Yes there are brands, but brand loyalty is a number of notches lower assuming you are comfortable that xyz name offers liquidity and is not going to go bust on you overnight. Additionally there is the circus around special offers and the like which the boys playing matched betting (look it up on the internet) and the like get all excited about. It is not quite a perfectly competitive area but barriers to entry are reasonably low.

Now all of this has led to consolidation over recent years as the comedy Paddy Power Betfair name attests. It is kind of instructive to see how many brands sector luminaries such as GVC (GVC), William Hill (WMH) and others have in their locker. That excites me at a certain level because it should offer the opportunity to cut retail outlets and funnel clients into online portals and progressively you are seeing this. So hence a little bit of self-help in an area where there are plenty of hard knocks.

I am rambling about all this for two reasons. Did you see yesterday that Sports Minister Tracey Crouch has resigned over the delay to the Government’s reduction in the maximum stake from £100 to £2 for those horrible FOBT things you can find in many betting shops and the like? The sector suffice to say liked this - being a truly magnificent (from their perspective) money spinner for them. The temporary bump from this was factored into sector share prices earlier in the week. No, the real reason I am warming up to this space is the inevitability that sports and related betting liberalisation in the US is a mega opportunity.

Certainly everyone has their nose in the pig's trough, jv-ing with local casinos and the like, but given the propensity for the average American to also bet to UK or Aussie levels over time, the know-how and school of hard knocks learnt lessons for the UK-listed names is a growth source. For what it is worth, I have stuck a 9 quid watch level flag on GVC shares given it also has plenty of self-help too. Stocks to punt over the next year? Quite possibly...


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