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Last October, the majority of listed operators’ valuations were at rock bottom and investor con?dence was at its lowest for years. eGaming Review reports on a drastic change in fortunes for the gaming industry
by James Bennett
Great expectations
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Percentage the gaming sector has risen year-to-date (Source: Peel Hunt Gaming Index)
www.egrmagazine.com
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hat a difference a year makes” was last year’s Power 50 list headline, but it arguably stands true more so today than it did 12 months ago. The vast majority of the industry’s listed operators have seen their fortunes change drastically in just a year with the gaming sector seeing a year-to-date rise of 41% compared to just 7% for the stock market overall, according to analyst house Peel Hunt’s Gaming Index for 2012. Prior to that, valuations were at rock bottom, investor con?dence was at its lowest for years, while the European economy was in full-on panic mode following a string of EU Member States pleading for bailout cash in a desperate bid to avoid default. It also didn’t help that regulatory uncertainty continued to blight a number of businesses, with bwin.party’s share price savaged (down 35% in two weeks) by the news that Germany had chosen an unworkable opening for sports betting with a high turnover tax and limited licences. A month earlier, eGR’s cover story led with the title “Drop Zone – can egaming’s public companies recover from this year’s stock pounding?” Share buybacks were rife with bwin.party and Playtech looking to protect long-term investors by investing in stock which they both felt didn’t re?ect “true value”. Regulatory uncertainty, however, still remains across Europe, with Germany’s plans still unclear; an increasing number of local operators pulling out of an arguably unfair French regime; the Italian market experiencing a year-on-year decline in gross gaming revenue (GGR) for the ?rst time
following a downturn in the performance of online poker and bingo; while the threat of a 2014 point of consumption tax looms large over operators that are highly leveraged in the UK. Total turnaround So, what has changed and why have all but one (see box-out) of the industry’s listed European operators seen their valuations rise to such proportions? If you turn to this year’s Power 50 list (page 40) and look at those companies that have remained in, or risen to, lofty positions, you will see why. Two years ago, for example, 888, one of the industry’s best known brands, simply could not do anything right. It acquired Wink Bingo on an earn out deal and months later realised it may not have enough funds on its balance sheet to cover the payments, poker numbers had plummeted and it had slipped into the liquidity doldrums, while a venture into social gaming looked disastrous with the board deciding enough was enough and writing off its £20m asset. Last month, however, analysts increased their EBITDA, pro?t and stock forecasts for the business following an eighth successive quarter of increased revenues year-on-year boosted by a continued market-defying poker performance. Numis’s Ivor Jones released a note in mid October saying the ?rm was upgrading its full year estimates for 2012 and EBITDA forecast “again” by 12% to US$65m, 60% higher than its forecast 12 months ago. He cited 888’s business in Spain outperforming expectations and the strength of poker revenues “more than making up for declines in casino
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