Investment View: Bigger onshore betting houses look better bets

If you’ve doubled your money on William Hill I wouldn’t blame you for taking some profits

Tax has become a taxing issue for the gambling industry. Controversy is raging over how much big companies pay and what they do to keep their bills down. Nearly all of the remote gaming industry (telephone and internet) used by British punters is now based offshore.

That's great news for punters and shareholders, not so good for the exchequer and Britain's balance of payments.

The Government's solution is to reform the gross profits tax, which replaced the hated betting duty, into something not too dissimilar to, erm, betting duty.

From 2014 all bets placed from Britain by British citizens will be taxed at the point of sale, shifting the location of the tax charge from where the bookie is based to where the punter is based. What we don't know yet is the rate of the levy that will be charged, although details are expected soon. Investors should watch this very closely.

In general, however, what this change ought to do is favour the big, previously onshore operations, for two reasons.

First, it ought to improve the competitiveness of their betting shop estates versus the remote business. Second, the big, established bookies operated onshore for a long time while paying a 15 per cent gross profits tax applied to all onshore betting businesses while competing against offshore-only internet operators. So, for that matter, did Betfair.

So they are used to operating – and profitably – under that sort of tax burden. Introducing a new gambling tax which captures everyone should favour them.

Therefore my bets, from an investment perspective, would be on big, established brands – with one exception, which I will return to later. That means William Hill, Ladbrokes, Betfair and Paddy Power.

The first two have both recently pulled off deals.

William Hill took out an internet-only operation in the form of SportingBet, in a joint deal with GVC Holdings which handed it the Australian business with an option over the Spanish arm. As an internationalisation play it made all sorts of sense.

I like the deal, and I still like William Hill as an investment. However, since the group earned a place in last year's Ten to Follow, when the shares were a buy at 202.8p, they've nearly doubled. They finished the year at 348.1p and are now testing the 400p level, which leaves them trading on just over 14 times this year's forecast earnings with a predicted yield of 3 per cent.

I'm still willing to hold for the long term, although if you've doubled your money I wouldn't blame you for taking some profits.

Ladbrokes has some catching up to do when it comes to valuation, trading at 12.8 times this year's estimates, but offering a tasty forecast yield of 4 per cent.

This is a business which has had its problems, but its acquisition of Betdaq, the number two betting exchange, is an interesting move. The success of the deal will depend on how the company goes about integrating the business, and whether it can tempt customers who were using Betfair to stay put with the new Ladbrokes exchange.

I've been holding for a long time, and I'd say stick with the company for now to see if this gamble can pay off. If you've followed this column's recommendations on Ladbrokes you'll be happy. The shares have done well.

I closed my eyes, held my breath and took a risk with Betfair for this year's Ten to Follow at 686.5p, after it pulled out of a number of markets thanks to difficulties with regulators, prompting analysts to take the scissors to their forecasts.

I'm expecting Breon Corcoran to cheer the City by pruning costs and perhaps restoring some of the sparkle to a business which had lost its way a bit. The shares haven't done much since and the rating is a fancy 19.8 times forecast earnings for the year ending April 2014. But I'm sticking with the bet.

Paddy Power's shares trade at 22 times next year's earnings. They're looking pricey, and while they're by far the cleverest marketeers out there, with a winning online offering, growing the betting shop estate in the UK (a big selling point for the investment) might get difficult in the current political climate. I'd be inclined to book some profits, as the shares have had a stunning run. Buy again if they show weakness.

Probability has long been the hot tip of this column. I declare an interest in that I have worked for the company in the past.

I like it because it's niche, and is in a sweet spot specialising in mobile phones, with punters increasingly using smartphones to gamble. It recently raised £2.5m to fuel growth. I tipped the shares at 67p last year. They've come off a bit because of the cash call, but that shows big investors have faith in the business. As do I. Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence