Percentage rise for the stock market overall (Source: Peel Hunt Gaming Index)
LISTED OPERATOR VALUATIONS RISE AFTER YEARS IN THE DOLDRUMS
(FROM 18 OCT 2011 TO 18 OCT 2012) 888 GVC Holdings Paddy Power William Hill Sportingbet Ladbrokes Unibet Rank Group Betsson bwin.party digital entertainment 32Red Betfair from 32p to 103.25p (up 214%) from 128.8p to 233.5p (up 81%) from €39 to €57.65 (up 47%) from 241.5p to 342p (up 41.6%) from 38p to 53.5p (up 40.8%) from 133p to 179p (up 34%) from SEK139 to SEK182.5 (up 31%) from 127p to 151p (up 18.9%) from SEK140 to SEK165 (up 17.8%) from 102p to 118.47p (up 15%) from 39.7p to 44.5p (up 12%) from 750p to 733p (down 2.3%)
(Source: London Stock Exchange, Google Finance, Yahoo Finance)
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wrought by regulation”, while at the same raising his price target to 120p from 100p. A sharp increase in focus, delivery, its core products and recreational customers as well as ?rst mover regulated status in Spain have combined to see it come back from the brink. If it was last year’s acquisition target (a failed attempt by Ladbrokes), today it is this year’s pick in which to invest. Nick Batram, analyst with Peel Hu nt, agrees: “The business has gone from strength-to-strength with [its poker software] Poker 6 continuing to attract and retain a growing number of users across all markets. The new Casino 50 product is also promising.” Sportingbet’s share price may have risen from similar mid 30 pence levels, however 888’s has exploded by more than 200% in 12 months and is now almost double the price of its sports betting rivals. Taking its operating loss of £39.1m with exceptional costs of £71.6m including expenses related to its 2011 acquisition of Centrebet away, Sportingbet has also been a consistent performer in 2012 generating higher than expected levels of synergies in Australia and in more familiar territories, successfully transitioning to regulated life in Spain after a tough start (Codere injunction) and has even gained slight market share in the UK. Again, effective management of the business, focusing on its core assets, exiting unregulated markets in favour of regulated territories and reducing its headcount (and centralising) in underperforming, and reinvesting in higher performing markets has paid off. So well, in fact, that it has until the middle of this month to consider whether or not to accept a second 61p a share bid from William Hill and GVC Holdings. While 888 may be the standout star this year, rising 10 places to eighth in the Power 50, at least two out of three of the industry’s high street-online brands have fared exceptionally well across the board, while all three of them have seen their valuations rise 30% or more. The two listed standout performers have been Paddy Power and William Hill Online, with both share prices up in the year from 18 October 2011 to the same period in 2012 by 47% and 41.6% respectively. Paddy’s stock price has been one of the best performing for some time, with exceptional marketing, branding and PR, consistent and huge growth in Europe and Australia respectively, as well as innovation in mobile, tablet and increasingly social media and social gaming marking meaning another brilliant year for the Irish. WHO, meanwhile, has continued where it left off last year growing UK and in-play market share as well as pro?ting from its JV with Playtech and also expanding into the US at ?rst in retail but with expectations to one day expand to online sports betting. The major test now will be whether or not it a) succeeds in acquiring Sportingbet’s highly pro?table Australian division and its regulated businesses and b) what valuation it places on Playtech's 29% stake. If both come off then,
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as Morgan Stanley’s Vaughan Lewis says, it would create “a global online leader” with the improving business mix suggesting a possible re-rating to a potential 15 times current earnings and a “bull case of 510p a share” compared to today’s 342p. Failure to complete the deals, however, would leave “an expensive stock”, he adds. “Should William Hill fail to complete either deal, its 2013e P/E of 13x would leave it exposed to a signi?cant derating. We think execution risks are relatively high for the Sportingbet transaction, given that it is a complicated deal involving three parties.” Ladbrokes, meanwhile, despite seeing its share price rise by a third in the last 12 months, has continued its bad run in online with persistent delays in launching its new sportsbook, mobile and CRM platforms halving digital pro?ts in the ?rst half of 2012 and with its position in the Power 50 falling as a result. This has left analysts questioning whether it can realistically recover and catch its online rivals, with Batram adding: “We are encouraged by the progress in trading (following Q3 numbers in October) and this does have the potential to surprise on the upside. Nevertheless, digital will be the main driver of sentiment, and the jury is still out.” But let’s not get carried away. In terms of lifetime values, a KPI the industry bases many of its projections on, several operators’ stock market valuations remain down from the heady heights of the mid-2000s. On the bright side, however, listed companies’ performance has exceeded expectations, growing by more than 40% and smashing the general market number. The question is, can this continue?
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