All bets were off as the William Hill share price crashed 12% yesterday

Gambling stocks like William Hill (LSE: WHM) and Flutter Entertainment (LSE: FLTR) slid yesterday on news of a call for tighter regulation.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in bookmaker William Hill (LSE:WMH) slipped by about 12% yesterday, and the rout is continuing today. In fact, shares across the gambling industry were all down similarly yesterday including those in Flutter Entertainment (LSE:FLTR), the owners of Paddy Power and Betfair.

Work done by the Gambling Related Harm All-Party Parliamentary Group (APPG) prompted the Department for Digital, Culture, Media and Sport to bring forward a £2 limit on fixed-odds betting terminals (FOBT) from 2020 to April 2019. Shares across the gambling industry declined from the announcement date to the implementation date but had made modest recoveries up until yesterday.

On Monday 4 November the APPG produced its interim report on the impact of the online gambling industry. The report calls for a £2-limit on online slot machine games, but also recommends deposit limits, and banning credit card use on gambling sites.

The report also calls for bookmakers to spend even more on software and treatments to assist problem gamblers and to contribute to a research fund into gamblings harm. The gambling commission, the regulator of the industry, was also accused of being “not fit for purpose“.

Given the previous success of the APPG, investors are rightly concerned that at least some of their suggestions will end up being enforced, which will mean less revenue and increased costs for the UK operations of Flutter Entertainment and William Hill – the largest and second-largest UK-listed gambling stocks by market cap – beyond the impact of the FOBT restrictions and increased due diligence requirements already introduced.

William Hill reckons that up to 900 UK stores could become unprofitable due to the FOBT stake limit, and 700 stores were earmarked for closure in its August half-year report. Flutter claimed in a contemporaneous report that its sports-betting led estate in the UK and Ireland meant it was comparatively more profitable on a per-store basis (even with a doubling of tax on sports betting in Ireland) and saw an opportunity to move in where its competitors were leaving, but still reported half-year retail revenues had fallen by 4%.

If the impact of current regulatory measures on UK gambling retail operations was bad, it is likely that new online regulations will be worse,  especially so if the scope goes beyond just a fixed limit on online slot machine games. Both companies’ online segments are becoming more important, especially so for William Hill, which is planning to close stores.

International online exposure and expansion would seem to be the key to watering down the effects of an increasingly scrutinised UK gambling market. This is particularly true for US expansion, where more states are legalising and regulating online gambling. Flutter is ahead of William Hill here, with 15% of revenues coming from the US, compared to William Hill’s 7%, with both planning further pushes.

Both companies likely have enough diversification to withstand whatever changes come in the UK market, so long as they continue to drive US expansion, and other markets do not match the pace of UK regulatory tightening. Overall I think Flutter is better positioned at present; its shares have recovered a tiny amount today while William Hills slumped further.

I would not want to bet on any of them at the moment though. I will be looking to pick winners somewhere else.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK owns shares of Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »