William Hill and Ladbrokes Coral have seen their share prices plummet as a potential government crackdown on fixed odds betting terminals appears imminent.
Shares in William Hill fell 13% and Ladbrokes Coral slid 11% in mid- morning trading on news that the government is about to cut the £100 terminal maximum limit to just £2.
Graham Spooner, investment research analyst at The Share Centre, explained what the crackdown could mean for investors: “At the moment punters can bet up to a £100 and the machines have been heavily criticised for their addictive qualities.
“The bookmakers who realised that a cut is coming have lobbied hard for a smaller cut and suggested that some shops may have to close if the change was implemented leading to job losses and further pressure on the high street.
Spooner adds: “The consultation period by the relevant Government department closes tomorrow so it will be interesting to see how the industry responds to the final decision.
The Share Centre continues to recommend William Hill as a ‘buy’ for investors due to the potential for further growth in mobile wagers, expansion into overseas markets and the prospect of further efficiencies within the business.
However, as Spooner points out: “The potential for further regulatory changes, both in the UK and Australia, along with increased taxes remain concerns so we regard the stock as higher risk.”
Other City watchers are worried about the impact of any government-imposed cut. “If maximum stakes are cut to £2 it would be a negative surprise for retail exposed UK gambling companies,” Barclays Capital said.
While analysts at Credit Suisse warn William Hill and Ladbrokes earnings could be slashed by 40% and 50%, respectively, in the worst-case £2 scenario.
Credit Suisse also predicts around 1,000 betting shops being closed as a direct result of the rule change.