by Renee Israel
Investors in listed UK gambling groups were warned by at least one analyst
this week that the industry is facing a tough year due to plans by the
government to introduce a damning tax hike.
Oriel, the analyst group, said that while "there are always risks for betting
and gaming stocks ahead of the budget," the risks are "greater this year."
In March, Chancellor George Osborne will unveil his budget, and it is
expected that it will include higher taxes on internet gambling companies that
operate offshore, including William Hill, Betfair and Ladbrokes.
As a result, analysts have downgraded share ratings of some online gambling
companies and are urging caution in what it calls UK gambling investment
In 2011, the UK government announced that it would be re-examining the way it
taxed companies which operated offshore yet still offered their services to UK
Several companies operate from tax havens such as Gibraltar so as to avoid
the already high 15% tax rate imposed on the gaming industry by the UK
The government, however, wants to force these companies to pay taxes as well,
and has said that it would address the issue in the March budget. Analysts say
that the re-examination "could result in gross profits tax introduced for
offshore operators in late 2013 or 2014."
UK Gambling Groups Have Shares Downgraded
Due to this scenario, Oriel said that it anticipated "some
uncertainty and share price weakness" for some of the main groups mentioned.
Oriel downgraded their Ladbrokes and William Hill ratings to 'reduce' and
removed Betfair from their recommended buy list altogether.
Ladbrokes share prices dropped 1.9p to 139 p, William Hill saw
its share prices drop 4p to 222.2p, while Betfair's were down 11p to 864p.
The only group which has managed to buck this trend is Rank
which made public its intentions to purchase the Gala group this week. Rank's
share prices climbed 4.1p to 131.1p.
Rank's chairman and chief executive officer, Ian Burke said late
last month: "Britain's landbased gaming entertainment industry has potential to
boost employment and thereby contribute to the growth of the economy."
Playtech has also shown that there is still much potential in
the UK gambling industry, after it agreed to pay £15 million for the Cheswick
based Geneity, which creates lottery and sportsbook software for groups such
Betfair, Labdrokes and Coral. The group has also signed joint venture agreements
with South African and German gambling groups.