Bitter sweet week for gamblers, but are Webis and Gan worth a punt?

There was bad news and good news for gambling companies last week. But it was the AIM listed stocks that were the winners.

Article updated: 21 May 2018 10:00am Author: Michael Baxter

The bad news (for gambling companies)

The UK government is lowering the maximum stake on fixed odd betting terminals from £100 to just £2. For some betting companies, the move could be disastrous. William Hill generates half of its retail revenue from these terminals. GVC Holdings (which owns Ladbrokes these days) warned that profits could be halved in the first year of the ban. But while many companies in the gambling industry say the move will lead to job losses, talk about the nanny state, and how gamblers will simply go online, Paddy Power was not so alarmed. Its boss, Peter Jackson said that the company has long had concerns that fixed odd betting machines were damaging the gambling industry’s reputation.

Analysts are now focusing on possible taxation hikes on gambling, expected to be announced in November, as part of the chancellor’s budget.

Good news (for gambling companies)

While the political climate in the UK relating to gambling seems to be becoming less favourable for the gambling companies, in the US its quite the different story.

The US Supreme Court has ruled that a US act that effectively banned sports betting across the US, with the exception of certain states, violates the Tenth Amendment. The act, Professional and Amateur Sports Protection Act, or PASPA, has been in force since 1992. The Tenth Amendment states: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

Justice Samuel Alito said: “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not. PASPA 'regulates state governments' regulation' of their citizens. The Constitution gives Congress no such power."

And that is good news for gambling companies with a strong US presence, or technology that could translate well into the US gambling business.

Webis and Gan

Webis is an Isle of Man based company listed on the AIM. It owns Limited, which operates a totalisator wagering hub through its United States Tote supplier, which enables it to conduct Advanced Deposit Wagering by passing wagers directly into global racetrack betting pools in real time.

WatchandWager also accepts bets through its website.

Gan is a B2B supplier of internet gaming enterprise ‘software as a service’ solutions to the US land-based casino Industry. It is headquartered in London, shares are listed on AIM and ESM.

Shares in both companies surged strongly on news of the Supreme Court decision. (Webis up four-fold).

Frankly, both companies were looking promising before the decision. Back in February, Webis revealed a 41 per cent increase in turnover, gross profit was up 7.1 per cent. Gan’s gross income rose 30 per cent in 2017 over the year before. It made a loss of £4.2 million last year.

But momentum has been with both companies.

The big consideration for investors is whether shares have risen too high in recent days. The combination of growth last year with the US Supreme Court decision could have massive implications.

Larger gambling stocks

For larger gambling companies, it seems the advantage is with those with stronger US links.

Shares in GVC are up three-fold in the last five years, up by little more than a quarter over the last year, and flat over the last month.

William Hill is down over the last five years, up by about a fifth over the last year and flattish over the last month.

888 has doubled over five years, up by about a fifth over the last year and also up by about a fifth over the last week.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.