Things have been difficult in the gambling sector of late. It is fair to say that the companies that engage in this sort of business are soft targets for Chancellors from any party. The recent Point of Consumption tax, currently set at 15%, that captures offshore companies as well as operators based here in the UK is a prime example. It is perhaps no surprise, then, that investors are currently uncertain given the current headwinds facing the sector.
Consolidation
One way to combat this is for the companies in the sector to take over smaller players. We’ve seen this attempted recently with William Hill (LSE: WMH) making an approach for 888 Holdings (LSE: 888) at a price tag of 200 pence per share, plus a 3 pence per share dividend. That deal fell through, but I suspect there will be plenty of activity going forward as some of the larger players look to snap up some of the smaller companies with a view to boosting their online presence and mitigating the current taxing environment.
Indeed, a number of the larger players including Playtech and GVC Holdings have specifically mentioned that acquisitions will be part of their strategy going forward. As such, I don’t think that this will be the last deal to present itself.
Going Online, Mobile and Further Afield
I don’t think that anyone will disagree that Ladbrokes (LSE: LAD) online offering was a disaster in 2013 and it has been busy in the first half improving its offering. Results seem to be heading in the right direction, too, with the company expecting to finish 2014 in line with expectations — although expectations were not overly optimistic.
So, is it time to head for new geographies while using new technologies? It seems to be working for GVC Holdings (LSE: GVC). It has a strong presence in Latin America, which was greatly assisted by the FIFA World Cup, and their proprietary mobile technology is well suited to in-play betting. My main concern here is regulation. Despite this, the stock trades on a forward P/E of just 8.5 with a yield of close to 9%, making it the cheapest in the sector for me.
Nothing is Certain
Whilst I think that the larger players in the field will have to acquire in order to move forward, one should not base any investment decisions on the hope of a takeover alone. And whilst I believe there are some interesting opportunities here with stocks on low valuations and generous yields, this should be just a starting point for your research.
