The UK government is reportedly evaluating a proposal launched by the ministers to review the terms and conditions for TV advertising for gambling companies. If the government honors this request, it could result in a substantial decline in revenues and profits for gambling companies in the country.
According to reports, “Government ministers have ordered a review of ‘crack cocaine’ fixed odd betting terminals, which are said to be responsible for at least two suicides. The review is also looking at the advertising of betting sites on TV, which is wall-to-wall in Premiership matches.†And now, investors are already readying themselves for a scenario that Prime Minister, Theresa May, may act on this in the near future.
This could result in significant stock price declines in the gambling industry, which means that opportunities for long-term plays in the market may be limited. Given the current scenario, it appears as though most of the stocks in the gambling segment may be slightly overvalued as the immediate future remains uncertain for TV adverts.
However, when you sift through, you will realize that some stocks in the industry might actually be still attractive relative to their peers and the overall market outlook.
For instance, William Hill, which recently pulled out of a merger deal with Canadian online gaming company Amaya, offers an interesting value proposition given the current circumstances. Shares of William Hill are down more than 27% since February whereas those of the industry leading counterpart, Paddy Power Betfair, have declined just about 20% over the same period. William Hill is looking to explore more opportunities as it looks to augment revenues generated from gambling shops. Some of the areas include online gaming and mobile casinos, which offer among other gambling services, video poker, slots, and Roulette.
The two stocks were locked at the same levels in late February, in late April, and again in late July, but as demonstrated in the chart above, their return levels have not locked horns again since then and for the last three months, they have maintained parallel trends.
