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View from the City: Can US operators live up to their punchy valuations?

Bertie Berger, Client Director at Hudson Sandler, guest columns in EGR, the online gambling industry magazine, examining the latest market movements as US-listed operators race ahead of their UK peers

The global spread of COVID-19 has resulted in an unprecedented month for all areas of the leisure industry. Equity markets have been in free fall and the gambling sector has not been immune to downward pressures. That said, this is certainly a period for prioritising the safety of people over shareholder returns.

It seems a lifetime ago that the Cheltenham Festival was given the green light despite emerging safety concerns. Since then, global sporting events have been cancelled and postponed to manage the spread of COVID-19. Both GVC and William Hill were quick to acknowledge the “material” impacts of cancelled sporting events in the current financial year, with the latter also suspending its dividend.

It is not just the sportsbooks who have been impacted. Rank confirmed the closure of its venues across Europe and, at the same time, withdrew guidance for its 2020 financial year.

888 reported strong trading in the first three months of 2020 with revenue up an impressive 18%. Whilst the operator flagged an anticipated impact from sporting cancellations, with 16% of 2019 revenue generated from sports betting and nearly $100m cash on its balance sheet, 888 looks well placed throughout this period of uncertainty. The market agreed with a 30% uplift in 888’s shares.

During the flurry of COVID-19 updates, Gamesys’ strong 2019 results were in danger of being overlooked. The company hailed a “transformative” year during which it entered the FTSE250 index.

In another interesting development, Betfred surprised the market by taking a more than 4% stake in William Hill.

Whilst the short-term impact of COVID-19 plays out, investors would be wise to look at longer-term implications and opportunities. Many operators are currently trading at highly attractive multiples which could attract potential bidders when economic normality returns. Furthermore, rumours abound in the US that legalisation of online betting could be expediated to support the damaged casino industry.

Originally published by EGR on 8th September 2020

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