Just as new research showed a worrying skew of gambling losses to more deprived areas of the UK, it is the lure of huge growth in the US that makes shares in FTSE 100 players Flutter Entertainment PLC (LSE:FLTR) and Entain PLC (LSE:ENT) attractive, according to Citigroup and JPMorgan.
The recent sell-off of the gambling sector "provides an attractive entry point" for both Entain and Flutter, Citi said in a note, with JPM also rating both companies positively in a note today.
Citi hiked its target prices for both companies after increasing its assumption of the US total addressable market to US$45bn from US$39bbn as a result of higher iGaming per capita spend.
Entain's target price is lifted to 2,800p from 2,700p, versus a last close at 1,453p, with Flutter's moved to £152 from £145, versus the last close of £91.32.
"The UK Gambling Act review should act as a meaningful positive catalyst, even in the event of a cut in online slot stakes to £2, as investors are provided with much needed certainty, in our view," said the Citi analysts, also adding that they "would not count out" a second bid from MGM for Entain.
JPMorgan meanwhile said Entain offered the "most appealing equity story", with solid execution, double-digit EPS growth, sound leverage with solid cash conversion to underpin further M&A, cheap valuation, potential bid support and a relatively better ESG profile.
Entain has a 2,200p price target from JPM, while for Flutter it is £126.
As for 888 Holdings PLC (LSE:888), the bank's analysts said they were keeping their 'neutral' stance, remaining on the sidelines post the acquisition of William Hill as the risk-reward was seen as "not appealing enough", together with concerns on leverage, higher exposure to unregulated markets and retail.
UK gambling data
Meanwhile, ahead of the release of the UK regulatory whitepaper, data published in the Patterns of Play study, commissioned by GambleAware and carried out by the National Centre for Social Research and the University of Liverpool, showed over 129,000 online gaming customers lost at least £2,000 in a year and that more than 420,000 punters lose at least £2,000 a year.
Numbers suffering losses are likely to be much higher, the researchers noted, as the data covers just over a third of the UK gaming market, with data studied from 139,152 online gambling accounts with seven major operators between July 2018 and June 2019.
The study said the most addictive online slot-machine-style products are “strongly skewed” towards deprived areas, with the 20% poorest regions of Britain supplying 25% of industry revenue.
Gaming companies derive 40% of their slots revenue from just 1% of players, who lost an average of £10,491 each on the games, the report found.
The research “shows it is important to raise awareness of the gambling harms associated with online gaming," said Professor Forrest at the University of Liverpool. "Gaming, in particular slots games, is much larger in terms of total online spending by British players and analysis of customer account data throws up more red flags indicative of potential harm from gambling.”
Zoë Osmond, CEO at GambleAware, said: “This research adds to the growing body of evidence showing that harms from gambling are falling disproportionately on the most deprived communities. The current cost of living crisis along with the economic fallout of the pandemic can only exacerbate this further – which underscores the need for concerted system-wide action to prevent gambling harms.
“We welcome the findings and recommendations for future public health campaigns, as we work to break down the barriers that those suffering from gambling harm face when accessing treatment and support.”