Panmure Gordon, a UK broker, views online gaming as a hot investment and there are five companies that are rated as good investments. Online gaming shares haven’t performed well in the market over the last year but with the recent strong balances and increased earnings the current share prices make them eye catching to potential investors.
"We think most companies traded strongly over Q3 and valuations appear undemanding,” stated the broker note. “However, with earnings difficult to forecast with high conviction as countries move to a regulated and taxed framework, the market is applying a significant discount to our estimate of fair value. We continue to favour a basket approach to the sector as all companies are employing slightly different strategies to achieve the common aim of maximising revenues from regulated markets.”
Panmure also advises that consolidation “remains problematic” because vendors and buyers have a difference of opinion on price, brand value and interpretations of legacy legal risk. 2012 is likely to be “a seminal year” due to increased regulations affecting the future of online gambling.
These companies have the seal of approval and have secured a “buy” recommendation: 888 Holdings (LON:888), Betfair (LON:BET), NetPlay TV (LON:NPT), Sportech (LON:SPO) and Sportingbet (LON:SBT). “The broker suggests the sector expects to realize a price-to-earnings rating of 9.1 times and an enterprise value/EBITDA rating of 5.3 times, with around 13-per cent compound growth in EBITDA estimated for the next three years.
888 Holdings represents an “opportunity for significant near-term gains” if they can confirm that they have enough cash flow to meet its deferred payment of Wink Bingo.
Betfair’s core products “continue to perform well” and “Yet the stock is inexpensive”, said Panmure.
NetPlay “has refocused on its core Supercasino product and has produced a strong financial performance so far in 2011”.
Sportech “has been transformed but is still not well understood”, according to Panmure.
Ladbrokes has recently come out of talks regarding acquisition and surprisingly the broker sees an upside to Sportingbet.
Panmure has recommended a “hold” rather than “buy” status on bwin.party and Playtech due to the undecided fate of German regulations affecting bwin.party and concerns about future collaborations and the financial future of Playtech.
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