Gaming stocks face challenges as regulatory pressure mounts
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A UK decision to limit bets on poker machines is the latest anti-gambling measure to ratchet up pressure on the gaming industry — and related ASX stocks.
In March the NSW government announced an overhaul of its gambling landscape, limiting pokie numbers and introducing bigger fines for misbehaving online bookies.
Increased pressure on gambling laws could impact ASX-listed gaming stocks.
The UK government plans to introduce a £2 ($3.60) maximum bet on poker machines, which independent federal MP Andrew Wilkie hopes will pressure Australia to follow suit.
The Tasmanian MP has reignited his campaign for a $1 cap on our 200,000 pokies.
“The Federal Government has it within its power to legislate for $1 maximum bets, as well as other harm minimisation measures like mandatory pre-commitment,” Mr Wilkie said.
“Unfortunately, the Government has shown itself to be thoroughly uninterested when it comes to reining in poker machines.”
Gambling by the numbers
ASX gaming stocks target an Australian market worth tens of billions of dollars.
In 2017 poker machines made up 57 per cent of all dollars gambled in Australia – surpassing sports betting at 5 per cent and racing at 15.5 per cent, according to Roy Morgan.
Lottery tickets made up a further 14 per cent, followed by casino table games at 5 per cent and Keno at 3.5 per cent.
But regulatory hurdles are already impacting gaming stocks.
Ainsworth Game Tech (ASX:AGI) — maker of pokies such as Pac Man Wild and The Magnificent Seven — plunged 38 per cent earlier this month after halving its half-year profit forecast to $20 million, blaming competitive activity and regulatory approval delays.
“We are clearly very disappointed by the re-basing of our profit expectations for 2HFY18. We operate in competitive markets and our execution this time has not met the high standards our shareholders correctly deserve,” chief Danny Gladstone said.
“We are moving decisively to improve our profit outlook and are continuing to progress new product developments and marketing initiatives, which we confidently expect to improve our performance in FY19.”
Aquis Entertainment (ASX:AQS), which wants to redevelop the Casino Canberra site, has been under the pump from local authorities to cap the number of machines at its new-look site.
It’s looking to rebuild the casino in a $330 million revamp and wants to include 500 pokies. But under new laws it could have to forfeit one in three of its pokie licences.
In Cairns, Reef Casino Trust (ASX:RCT) has reported an estimated $4.8 million profit for the first half – which it has put down to the improved Chinese New Year trade and hotel operations.
But at its recent AGM the chief told the market pokie use was lagging: “Casino electronic games revenues were 0.6% lower than 2016.
“A special slots focus group was formed by management during 2017, new gaming machines and new games were introduced, our tiered loyalty membership program was built on, and we continued to implement a full and exciting program of marketing, promotions and entertainment which is proving successful.”
Vietnamese and Cambodian casino operator Donaco (ASX:DNA) reported a decrease in earnings at both sites for the last quarter due to management issues.
The gamble is still to pay off for Filippino casino owner Frontier Capital Group (ASX:FCG), which remains in suspension since last August for non-payment of its listing fees.
|ASX Code||Company||MARKET CAP||Price May 21||6 MONTH PRICE CHANGE|
|AGI||AINSWORTH GAME TECH||$425,616,544||1.28||-42.57%|
|FCG||FRONTIER CAPITAL GROUP||SUSPENDED||0.08|
|RCT||REEF CASINO TRUST||$159,938,976||3.28||16.31%|
The government set out its Interactive Gambling Amendment Bill earlier this month, to prohibit the betting on the outcome of a lottery or keno draw.
According to the government, the bill will protect 4000 retailers in Australia which rely on lottery commission to cover the costs of running a business — and safeguard $1bn in tax revenue received by States and territories.
The Bill prohibits gambling providers from offering players in Australia a service for placing bets on the outcome of domestic or international lotteries, or a contingency that may or may not happen in the course of the conduct of a lottery.
Recently renamed Plus Connect (ASX:PC1) – formerly Activistic – took to the market on Monday to affirm its sports lottery business would not be impacted by the changes.
“The company has received written confirmation from the Department confirming Plus Connect’s view that the Bill will not affect the operation of Plus Connect’s products if the products rely on the Other Underlying Events,” it told the market.
The charity micro-payments platform turned lottery maker is awaiting re-compliance on the ASX after acquiring the business in March last year – but had to confirm the changes would not affect its business model.
Lottery re-seller Jumbo Interactive (ASX:JIN) too will be watching closely.
It has online lotteries operational in Australia and Mexico – after it cut it losses in Germany last year, what contributed to losses of $2.6 million in FY15, and of $1.6 million in the year following.
But in Australia it has grown substantially over the past several years – amounting to over 389,000 active users in the 12 months December.
Average spend per customer was $368.91.