iGaming Business magazine iGB 112 Sept/Oct 2018 | Page 116

Finance
Chart 1: RP iGaming 35 stock index
6,800
Index
NASDAQ (RHS)
31
0
August
7,000
20 7,200
40 7,400
60 7,600
80 7,800
100 8,000
120 8,200
140
Index-WMH
Chart 2: Top 15 components by Index share (31 August 2018)
6.8%
1.6%
1.8%
2.1%
2.2%
2.4%
2.6%
21.1%
3.3%
2.9%
4.2%
16.2%
6.6%
7.5%
11.6%
7.7%
Stars Group
Paddy Power Betfair
Churchill Downs
Playtech
GVC
888 Holdings
NetEnt
Kindred Group
William Hill
Jackpotjoy
Evolution Gaming
Betsson
Bet-at-home
Tabcorp
Kambi
Other
Chart 3: Top 10 Index components (11 May-31 August 2018)
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Stars Group

888 Holdings
GVC
iGamingBusiness | Issue 112 | September/October 2018
Betsson
Evolution Gaming
Tabcorp
Kindred Group
William Hill
Paddy Power Betfair
Churchill Downs
112
0
gains (the leverage being an important component of stock volatility
– in both directions).
The index largely held onto these gains during the pre-Q2
reporting period, buoyed by US newsflow (with plenty of hyperbole),
the hope of a strong World Cup performance for exposed stocks
and relatively strong underlying market conditions. Indeed, the
index reached its peak for this period in the week of 20 July – just
before the Q2 reporting season began (and several weeks after
Playtech’s profit warning).
Most companies reported broadly in-line Q3 results, but most
were aggressively sold off regardless (see Chart 2). It should be
noted that this was a largely gambling-specific phenomenon – our
benchmark has continued to make steady gains while the RP
iGaming index sank to ‘pre momentous’ levels and has yet to recover.
The index is currently trading 3% off its start and fully 13% off its
July highs. We believe there are four reasons for this, though we
caution that seeking reason in short-term price movements is often
a fool’s errand.
First is a condition that has been present in gambling for as long
as the sector has been popular with investors: reality is rarely as
exciting as the promise. This is particularly an issue with a period
driven initially by M&A, World Cup and US hopes. While there
has certainly been some of the former (PPB-FanDuel, for example),
the big companies have not yet been the target. Equally, for all the
hype around the World Cup, it is at best only about 5% of a typical
European sportsbook’s revenue – material, and a big swing factor in
the summer, but easily lost in the noise. Equally, while PASPA might
be exciting in the long term, initial results inevitably reflect the costs
long before the rewards.
Second, we are seeing a material shift in growth patterns which
is not helpful for listed companies. Online growth is still strong in
southern Europe, as demonstrated by official figures in Spain and
Italy. Restricted markets are also seeing mass market boosts with
catalysts – see France and Portugal. It is also possible that Asia is
growing strongly (except for Playtech), though this is opaque. The
problem is that listed companies have very little, if any, exposure to
these markets because they are small and/or their leading operators
are private. Instead, listed companies are heavily weighted to the
UK and Nordics, where growth has become a lot more challenging
since last year (not for all, but certainly for a critical mass of exposed
stocks). The problem with single-digit underlying growth is that even
a high margin World Cup cannot make it exciting relative to the risks.
The third reason is regulation, of course. The FOBT issue in the
UK might have been decided, but the regulatory heat has shi