Thursday saw a tale of two gaming groups.
Ladbrokes and Coral owner Entain PLC shares added 4.4% following an upbeat update and optimism about the World Cup, but it was a different story for casino and bingo hall operator Rank Group PLC, which has disappointed the market with its first-quarter report and saw its shares fall 8.53%.
In light of weaker trading at Rank's Grosvenor casino venues, only partly offset by £12mln from the government's energy relief scheme, analysts at Peel Hunt and Shore Capital both cut their profit forecasts.
AJ Bell investment director, Russ Mould said: “There’s a saying that during tough times our appetite for betting increases. People feeling the pinch of a higher cost of living or gloomier economic conditions are often prepared to bet the remaining cash in their pocket in the hope of winning big on the horses, football or other sports or games.
“Thus, faced with the current miserable backdrop, one might expect gambling firms to be raking it in. The evidence suggests it’s not that clear cut."
With Rank running casinos and bingo halls across the UK, it reported Grosvenor revenues in London ahead by 21% offset by the regional estate down 17%, while Mecca continued its slow recovery with growth of 2%.
Even if more people are visiting the venues, they’re spending less, said Mould, especially outside of London.
“Takings in Rank’s Spanish operations have shown much stronger gains but overall, there is a sense that the group may not see the heyday some might have expected," he said.
“Entain is a more global beast, but it too hasn’t seen a large pick-up in net gaming revenue in its most recent quarter when looking at its online operations."
Its total net gaming revenue (NGR) was up 2% but flat if the benefit of the weak pound was ignored.
Digital revenues were ahead by 1% but down 2% on a constant currency basis, which was said to be broadly in line with expectations.
Peel Hunt analyst Ivor Jones said the statement was "reassuringly dull", but noted that with operations paused in the Netherlands while it waits for a licence, group online revenue outside that country would have been up 4% year on year.
The FTSE 100 group also owns a bricks-and-mortar estate of betting shops and Gala bingo halls, which have seen more encouraging growth than at Rank.
But more enticing for Shore Cap's Greg Johnson was the progress at its US joint venture, BetMGM, which generated net gaming revenue growth of 90%, with over US$1bn amassed in the year to date.
He saw this performance as “significantly underpinning” the target for BetMGM of hitting more than US$1.3bn NGR in the full year, with market share for the American JV also robust at 25% in markets where it operates, and management reiterating confidence in reaching “sustainable positive EBITDA during 2023”.
Johnson said if BetMGM's valuation was given the same 3.5-times-revenue multiple that US rival Draftkings enjoys, it would imply Entain’s non-US income stream is valued at “just” 6.5 times underlying EBITDA.
Mould pointed to a simpler argument “stopping investors from panicking about sluggish overall progression” was that the Qatar World Cup is due to kick off on 20 November.
“Traditionally this attracts an elevated level of betting from sports fans, for many it might be the only gambling they do this year,” he said.
As for Rank, while its digital revenue increased 13% as the migration of Grosvenor was completed to the new Ride platform, Shore Cap slashed its 2023 profit before tax estimate to £30mln from £39mln, while Peel Hunt cut its EBIT forecast for this year to £43mln from £52mln, as well as for the next two years too.
"Although the energy cost reduction is encouraging, this is likely to be more than offset by rising inflationary pressures and the softer trading in Grosvenor’s regional estate," said Johnson.