The report from the gaming analysts at UBS which pulled the rug from under the share price of William Hill this week doesn’t pull its punches when it comes to the near-term future for the high-street bookmakers.
The team at UBS suggest that retail operating profits could decrease by an average of 40 percent depending on what the upcoming Triennial Review decides with regard to the maximum staking levels of B2 machines.
However, should the government opt to give in to the demands of campaigners and take the stakes limit for B2 down to £2, the team at UBS estimate it would more than wipe out retail operating profits at William Hill and Ladbrokes and cause significant dents in total group earnings.
Should the government opt to change the maximum stake to £10, UBS estimates that William Hill would see 78 percent of retail operating profits disappear while the figure at Ladbrokes would be 91 percent.
The UBS team do caveat these predictions. They say they have assumed that customers who were staking above any newly-imposed limit previously would reduce their staking amount to the new limit with no change to frequency or length of play. They have also assumed no increase in B3 activity, though recent evidence would suggest that both Ladbrokes Coral and William Hill have driven an increasing mix of gross win from B3 machines, thus somewhat reducing their dependence on B2.
“Given we have assumed no mitigation of any downside (either through increased focus on B3 content, or through cost measures) we believe these outcomes are worst-case scenarios,” they add.
The release of the report nevertheless had an effect on the share price of William Hill which fell nearly 6 percent on the day of release.
The report also suggested the bookies had further vulnerabilities to the potential for machine gaming duty (MGD) being raised in the upcoming March budget. Though they think this is unlikely, they suggest that a move by the chancellor to increase MGD to 30 percent from 25 percent would feed through to a 15 percent hit to retail profits at William Hill and a 21 percent hit at Ladbrokes Coral.
As the UBS team suggest, there is evidence in terms of the current pricing of the share prices of the retail bookmakers that the threat of the upcoming Triennial review hasn’t been truly priced in for both William Hill and Ladbrokes Coral. The industry should clearly be worried about the potential impact of a cut in maximum stakes.