- Gambling Review measures less onerous than feared

- Rank directly benefits from increased gambling machines

- White paper expected in coming weeks

The long-awaited Gambling Review white paper was leaked to The Times newspaper this week and if proven accurate should provide a lift for a gambling sector that had been expecting more stringent measures.

Casino and bingo operator Rank (RNK) and online gaming firm 888 Holdings (888) look like the main beneficiaries of the latest change to regulations. Their shares have gained slightly despite another tough week for UK shares.

Greg Johnson, leisure industry guru at Shore Capital commented: ‘Overall, if the body of the article is broadly correct, we would see this as a potentially better outcome than feared for the industry and better for stocks.’

LIGHTER-TOUCH MEASURES

Consistent with market expectations online casino staking limits of between £2 and £5 will be introduced and quick games which lure customers into taking more risk will no longer be allowed.

Gambling consultancy Regulus Partners estimates the impact from imposing a £2 limit is likely to reduce slot revenues by around 15%.

Analysts at Numis reckon the measure will only impact operators’ revenues and EBITDA (earnings before interest, taxes, depreciation, and amortisation) by mid-single digit and single digit percentages respectively.

Numis believes Flutter Entertainment (FLTR) is the least impacted and 888 the most impacted through its ownership of William Hill.

There were fears that more stringent affordability checks on customers could have seriously impacted industry revenues, but this appears not to be the case.

Plans to ban gambling companies from sponsoring football club shirts have also been dropped after push-back from some clubs.

The government estimates the latest measures could impact industry revenues by around £700 million, equating to around 12% of revenues according to Numis.

The profitability impact is less than analysts anticipated. For example, Johnson was expecting a £50 million-to-£100 million EBITDA impact for Coral and Ladbrokes owner Entain (ENT), but now reckons the cost to be at the bottom end of the range.

WINNING HAND

Allowing casinos to install 80 gambling machines rather than the current 20 would be ‘unambiguously positive’ for Rank, argues Numis. The broker estimates the benefit could lift operating profit by around 35% to £37 million.

The government white paper is expected to be released in coming weeks and the measures implemented in 2023.

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Issue Date: 01 Jul 2022