William Hill, Ladbrokes and 32Red, where next?

It's been a while since I looked at the UK gambling sector (for anyone interested in previous posts click on the labels below) and it seems to be a sector that continues to recover, although some companies appear to be hotter and more in favour than others. I came across this analysis today that is worth a read and it does save me the time of going into the fundamentals.

http://bulmerinvestments.com/betting-on-gamblers/

It covers William Hill, Ladbrokes and AIM tiddler 32Red, which was flagged up here some time ago as one of the few potential smaller company takeover targets left in the sector. Naked Trader Robbie Burns seems to have bought it with a view to holding it in the hope of a takeover at some stage.

These three can actually be compared to a three horse race, William Hill being the class of the field, Ladbrokes, the underachiever who promised so much but has failed to deliver and 32Red a complete outsider with bags of potential. Bookies would probably have William Hill as the odds on favorite, with Ladbrokes and 32Red vying for some long shot money.

William Hill's recovery in the last couple of years seems to go on and on. The share price is now heading towards 500p and there is a lot of good news and expectation in that price going forward. They are no longer cheap and it would be easy to imagine a bad set of results hitting the share price hard, but so far the company has delivered.

Ladbrokes is the opposite.  They have everything to prove and will hope that their deal with Playtech leads to an improved bottom line from their online offering. If they are finally putting things right then compared to William Hill they are cheap. The article above makes a case for the upside if Ladbrokes has finally got its act together.

32Red has the attraction of perhaps being an eventual takeover bid from one of the bigger players. In the meantime it is a decent company in its own right and from next Monday as an AIM share it can be put in an ISA. It's more of a gamble than the other two, but if it attracts the interest of a bigger player it won't be sold for its current forward P/E of around 10.

William Hill delivers the knockout punch?

There couldn't be a bigger contrast in market sentiment in action than comparing today's response to William Hill's results with Ladbrokes downbeat report delivered on Monday.  As of writing the company is up around 5% on the back of its statement, so has William Hill delivered a knockout blow to its rival?

In fact, reports suggest that William Hill are seeing moderating growth, yet the market still seems to like what it sees. However, when it comes to presentation it would appear that William Hill knows better than Ladbrokes how to hide any bad news in its statement as can be seen by what it reported about its Cheltenham results.

Cheltenham results were not as good for us this year but just after the quarter end, Auroras Encore made the Grand National a major success for William Hill, even beating our record win achieved on the race in 2009 when Mon Mome romped home at 100-1. Both of these big meetings proved to be significant attractions for mobile bettors. Our app was downloaded 45,000 times on Grand National day and 51,000 times during the Cheltenham Festival, putting us at the top of the downloads league for both events.

http://www.digitallook.com/news/rns/20838794-14283/WMH-Q1_Interim_Management_Statement_html?ac=,&username=,

Note how the bad Cheltenham results are glossed over by mentioning the Grand National success and the continued growth in digital players. Ladbrokes made no mention of any improvement in trading after Cheltenham, although surely they did well out of the National meeting as well? Ladbrokes statement left enough to doubt that going forward the company is still struggling, whereas William Hill are now seeing the benefits of its investment online, takeover of Sportingbet and relationship with Playtech. Judging by the two statements released this week, Ladbrokes could learn a lesson to be more upbeat about future prospects, unless of course it really is bad.

Going forward William Hill seems to be projected highly on growth company numbers compared to rival Ladbrokes, which increasingly looks like a value play. Of the two its the latter that has more potential upside, assuming of course that management has got it right on the recovery plan that they have.

Here's the numbers before today;

32Red - Final Results

32Red was first mentioned here when the share price was around 43-44p, since then it has been a steady riser to around 57p on the expectation that it would probably deliver good results in its final report. Well today we got those good results.

Commenting on the results Ed Ware, Chief Executive Officer, said:

"The Company has enjoyed another year of considerable progress thanks to the focus and drive of the 32Red team. Not only have we delivered our third successive year of record results in 2012, but we have also successfully launched the 32Red brand in the newly regulated Italian market. Our strategy of increased investment in marketing is delivering strong levels of new player recruitment.

"This year has started strongly and we are confident of further progress in 2013, both financially and operationally, as we continue to grow the 32Red brand in regulated markets"

http://www.digitallook.com/news/rns/20774871-134513/TTR-Final_Results_html

Certainly looks like a decent growth story in the sector and while the fundamentals now look a little stretched from a few months ago, the added attraction here is that it may eventually attract takeover attention. The numbers still look pretty good though.

The gambling sector is not everyone's idea of a good investment, but for those who don't object on morality grounds, 32Red looks a good bet. As always DYOR.

Update:

Just read that Naked Trader Robbie Burns is a fan of this company, he mentions it in his latest update and also talks about how nice it would be if only it could be put into an ISA. As an AIM stock the Government is still in consultation mode on this change and yesterday's budget made no reference to anything happening this year.

For example just recently as those who came to the last two seminars know I was keen on 32 Red (TTR) - results are good but mainly I would hope there is a good chance of it getting bought out by one of the main bookmakers.

I bought them up mainly for my pension as AIM stocks are allowed in there and got a nice lot at 41 and at 45, and a few more last week.

However as they aren't very liquid IG wouldn't let me have many although lucky for me spreadex did and I built a nice stake with them.

But.. if I could have put them in an ISA I would already be in a very nice tax free profit. So just one example this new freedom to put AIM into ISAs will give me. It reports tomorrow and it could be a down day on a sell on the news thing but I'd be tempted to buy more on any weakness.

http://www.nakedtrader.co.uk/

Online gambling one step closer in the USA

Some of the biggest movers in the UK markets this morning have been in the gaming sector on the back of a report from the US that legalized online gambling is one step closer.

Gov. Chris Christie (R-NJ) conditionally vetoed the online gambling bill that would authorize Atlantic City casinos the ability to offer New Jersey residents the ability to play poker, roulette, baccarat, blackjack, craps, big six wheel, slot machines, mini baccarat, red dog, pai gow and sic bo online. Despite the conditional veto tag, proponents of the expansion of online gambling believe this is a big victory for the industry.

According to the New Jersey legislature glossary, a conditional veto is "a veto in which the Governor objects to parts of a bill and proposes amendments that would make it acceptable. If the Legislature re-enacts the bill with the recommended amendments, it is presented again to the Governor for signature."

http://espn.go.com/poker/story/_/id/8925250/new-jersey-internet-gambling-bill-conditionally-vetoed-state-allow-online-gambling

This has had a dramatic effect on some of the UK online players this morning so far.

Bwin.Party up 20%
888 Holdings 17%
Betfair 4%
32Red 3.42%

Even behemoths William Hill and Ladbrokes are up slightly on the back of this news, the former has been positioning itself in the US over the last couple of years for the likelihood that sooner rather than later online gambling will be legalized.

While some investors will probably steer clear of these type of "sin" companies because of objections to gambling, for those that don't have a problem with the industry there is massive potential going forward, especially once countries like the US open their doors and legalize the industry. The sky is potentially the limit if the same were to happen in China, although no one should bet on that happening for some time.

32Red, the next Sportingbet?

Smaller companies in the gaming sector are always likely to be talked of as possible takeover targets of bigger predators looking to expand their empire, Sportingbet being one that was long put in such a category before finally accepting a bid from William Hill . For investors a takeover is never guaranteed and even if it does happen it might not yield the return that some thought possible, but one of the attractions of buying into smaller companies is that at some stage they might attract the interest of someone bigger. 32Red looks to be one of those attractive, solid smaller gaming companies which even if it doesn't attract any interest is worth investigating in its own right.

It reported fairly solid numbers this morning;

Trading in 2013 to date has been strong across the Company's products with Gross Win for the first twenty-one days in January up 15% on an exceptionally strong corresponding period in 2012 that benefitted from significant promotional activity.

Commenting on the performance, Ed Ware, CEO of 32Red, said:

"32Red has enjoyed another strong year of revenue and profit growth, driven by new player recruitment and our focus on the delivery of exceptional levels of service and entertainment to casino players.   

The Group will announce its preliminary results on Thursday, 21 March 2013.

http://www.digitallook.com/news/rns/20640312-134513/TTR-Trading_Update_html

They are expecting to deliver profits in line with market expectations for 2012 and the current P/E is 13.5, forward P/E 11.2, which for a company still experiencing considerable growth isn't too demanding. In general, its fundamentals look fairly solid based on past performance.

One to note for that March result date.