Shares in Ladbrokes owner Entain plunged as the firm said it will miss its full-year revenue guidance, sending shares tumbling, as the implementation of new UK safer gambling rules has had a bigger impact than expected.
Shares lost as much as 15% to 898.2p. That left them down 33% for the year, and meant more than £1bn was knocked off the firm’s valuation over the course of a day.
The betting giant said revenue since the end of the summer has been “softer than expected”, due to a mix of punter-friendly sporting results, and a bigger-than-expected impact from safer gambling measures and regulatory challenges, especially in the UK. Slow growth in Australia and Italy also hit revenue.
In the UK, the Government opened consultations on new safer gambling rules that include “affordability checks” for higher-spending bettors, and a cap on the amount that can be staked on online slots.
The rules haven’t come into force yet, but Entain said it started to bring them in early. Before the rules were announced, Entain said it took a roughly £110 million revenue hit from implementing the reforms it expected to be introduced, with a smaller additional impact when the Government laid out the plans in more detail. But now it appears the changes may have had a larger impact than previously thought.
The group downgraded its revenue target but left profit unchanged, as it said “robust operational controls” would protect profits.
Those controls include a “comprehensive market review”, which could see the business - which also owns Coral and Bwin - quit countries where it doesn’t see big growth opportunities. It also hinted at job cuts, saying the group’s structures and operations would be simplified to cut costs.
Russ Mould, investment director at AJ Bell, said: ““The social harm from gambling is such that governments are stepping up their efforts to curtail the impact both in betting shops and on the internet.
“This means companies have to spend more on measures to mitigate problem gambling and that can lead to slower customer acquisition. The weak growth flagged in Australia and Italy also suggests people are not gambling as much or as frequently because cost-of-living pressures mean they have less in their pocket to fund a flutter.
“Entain deserves some credit for maintaining its earnings guidance for the full year despite the disappointing third quarter showing as it keeps a tight rein on costs.
“However, it may be making some optimistic assumptions about performance in the fourth quarter in sticking with forecasts which could fail to materialise, resulting in a damaging profit warning down the line.
A bright spot has been the US, where Entain has a joint venture with US casinos giant MGM. But analysts have long felt that neither party wants only 50% control of their US operations in the long run, and questions about the future of the joint venture arrangement only grew when MGM launched a UK betting site without Entain’s technology.
CEO Jette Nygaard-Andersen said: “We have made significant changes to the group over the last three years.
“Our focus now is on accelerating the actions we are taking to drive sustainable organic growth, expand our margins, capitalise on the US opportunity and deliver long-term returns for our shareholders.
“We remain confident in our ability to deliver on the vast opportunities ahead of us.”
Paddy Power and Sky Bet owner Flutter’s shares lost as much as 4.4% as investors expected its revenues to be hit by similar factors, while William Hill owner 888 was down 7%.