Web betting boom could spell worldwide wins

Take a look at the form, and if you like the odds, take a punt, says Jenne Mannion

The forthcoming World Cup is set to give a huge boost to all sectors of the UK gambling industry, which is already growing at 3 per cent a year. But even without this fillip, investment professionals are identifying opportunities in booming internet gambling companies such as PartyGaming, Betandwin, 888 and Sportingbet.

Although the share-price performance of internet gambling stocks has gone up and down of late, the margins remain solid. In 2005, PartyGaming, Sportingbet and 888 all grew their earnings per share by 50 per cent or more. According to the investment bank Dresdner Kleinwort Wasserstein, at least 20 per cent growth is forecast for 2006.

Sceptics believe that internet gambling is largely a fad, but Simon Murphy, the manager of the M&G UK Growth fund, has a large holding in Sportingbet, and is confident the industry will continue to grow. Internet gambling accounts for only 4 to 5 per cent of the industry worldwide, yet he believes that, thanks to broadband, this is set to grow to around 10 per cent.

A cloud hangs over internet gambling firms, however. They have a big US customer base, and factions in the Government are trying to stamp them out, though the latest attempt to change US law to crack down on American punters was thwarted this week .

James Ridgewell is the manager of New Star's UK Special Situations fund, almost 7 per cent of which is dedicated to internet gambling stocks. He sees the regulatory risk in the US as anopportunity, because investors have shied away from these stocks, creating cheap valuations.

"Because of the perceived risk, there have been few new entrants to the market," he says. "Existing players have been able to build up their client base in an industry where companies benefit from the first-mover advantage."

He points to Betonsports, which, alongside Sportingbet and 888, is one of the companies that he holds. Betonsports is trading on a price-earnings ratio of nine times for 2007, but has a high yield of 4.2 per cent and earnings per share growth of 46 per cent. He believes that the US anti-internet gambling factions will not succeed.

Andrew Lee, a research analyst at Dresdner Kleinwort Wasserstein, agrees. His firm has ranked PartyGaming and Sportingbet as a buy, and 888 as a hold.

But these stocks will get a bumpy ride as regulatory pressures mount. In March, the shares of PartyGaming, 888 and Sportingbet were hit by up to 9 per cent in early trading after the approval of a US bill to ban the use of credit cards, cheques and electronic fund transfers for internet gambling, losses that were, however, quickly reversed.

Not everyone is so confident. Andy Brough, the manager of the Schroder UK Mid 250 Fund, does not hold any internet-gambling stocks and believes that the high operating margins are unsustainable in the long term. Barriers to entry are also low, he adds - it only costs about £30,000 to buy a fully operational poker site. "There is already evidence of margin pressure. For example, many companies are offering sign-up bonuses and loyalty bonuses in a bid to be competitive," he says.

In terms of traditional casinos, the picture is certainly rosier after the Gambling Deregulation Bill was passed last year. An important facet of the Bill was the dropping of a rule stating that casino users had to become members at least 24 hours before they visited the premises. Under deregulation, casino owners will also be able to promote themselves through advertising from the end of 2006.

Simon Murphy, who holds Stanley Leisure and London Clubs International in his fund, is optimistic.

Before the the removal of the 24-hour rule in October last year, it was estimated that only 2.7 per cent of adults had visited a casino. Now any adult can visit one. "It will become commonplace to end up at a casino on stag nights, or after football and clubbing. Although these visitors would spend less per head than hardcore gamblers, it will not cost the casino any more to attract such new business," Murphy says. One advantage for existing casinos is that, from this month, the rights to build new casinos under a 1968 Act will be lost.

But it is not all good news. London Clubs International has announced that profits would be flat this year (it blames a slump in visitors after last summer's attacks on London), and it suffered from a low win percentage, while some unpaid debts remained outstanding.

Murphy believes that these developments will not seriously affect the group's longer-term fortunes, though, as they relate to the group's most exclusive club, Les Ambassadeurs (which is to be sold).

Meanwhile, back on the high street...

* Traditional high street bookies are still providing investors with good opportunities.

* These companies suffer when several favourites come to fruition, which means that they must pay out big sums, leading to a profits warning and consequently a fall in the share price. For instance, William Hill issued lower full-year profits this year after too many winning favourites came in.

* James Ridgewell, the manager of New Star's UK Special Situations fund, cites Ladbrokes, which he describes as being valued very cheaply, as one of his long-term holdings. Ridgewell expects that Ladbrokes could be the subject of a takeover or that the business will recover.

* "When this happens, the share price falls back and it provides a good chance to buy shares cheap," Ridgewell says. "There may be a profits warning, but the company ultimately recovers and the share price responds."

* Certainly, with the upcoming World Cup, the bookies can be confident about a surge in business amid the flurry of excitement surrounding the event.

* Simon Murphy, the manager of the M&G UK Growth fund, says: "The fact that the World Cup is being hosted in Europe and that the England team is one of the favourites will also help boost interest. There will be an increase in the numbers of people placing bets. This is the case with all major sporting events, and the World Cup will be no exception."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee