Gambling Firms’ Shares Suffer In Market Turmoil
The stock market tsunami that occurred in the first week of August 2011 has showed us that the there is no safe island when the markets take a fright. The fear in the market is due to the persistence of the sovereign debt crisis and the self-inflicted damage caused by American political point scoring regarding the raising of US debt ceiling.
The gambling industry has been hit in some markets by the falling discretionary spending of households in Europe and the US and was not spared from the havoc unleashed by frightened traders and shareholders.
Even the stocks of casino operators trading in Macau and Singapore, where revenues have remained strong, lost value.
Amid the 4 day panic the -8.7% slide of Wynn Macau is perhaps not that surprising. Although Wynn Macau produced a 37.5% jump in casino revenue in the first half of 2011 compared to 2010, the operating profit was down 11.2%, mainly because operating costs jumped 48%. So the -9.2% net profits compared to 1H of 2010 could have a good reason to dump shares. But the -5.3% of Sands China does not really make any sense. In the January-June period, Macau’s gambling revenue rose 44.6% to about US$15.6 billion, from a year earlier, following a 58% surge to US$23.4 billion for the whole of 2010. Within this framework, Sands China, for Q1 2011, had a 9% rise in casino and total revenues and a 24% increase in operating profit compared to the same period in 2010.
In Europe bwin.party’ shares tumbled by more than 16%. Many shareholders were probably not convinced by the 2% rise of revenue in Q1 2011 compared to Q1 in 2010 (but decline of active player days). Lottomatica, which is based in Italy, one of the countries in the eye of the storm in the Eurozone sovereign debt crisis, lost 13.5% between the 2nd and 5th of August despite the healthy 6% increase in net income for the first half of 2011 and the brilliant performance of its video lottery (VLT) division. The other Italian company, SNAI, also lost 9.5% of share value, even after a spectacular +86% in EBIT (‚Ç¨17.3m) in Q1.
888 Holdings, which generates a substantial part of their income from the Eurozone lost 14.9% of its share value in the first week of August. The fact that in July it reported that its total operating income for H1 increased by 18% to US$154m did not overwhelm many shareholders. Playtech lost a less severe, but still substantial, 11.2%.
Operators which mainly operate in the UK took less of a hit. The two British betting giants, Ladbrokes and William Hill lost 7.4% and 4.1% respectively. William Hill was certainly helped by the 33% increase of profit after tax for the first half of 2011 which it reported on 5 August 2011. Other operators like Jaxx and 32Red were spared from the turmoil, probably due to lesser liquidity in their shares and more dedicated shareholders.
The losses of casino operators in the US were much more severe. The poor prospects of the US economy, the political bickering about raising the debt ceiling and the downgrade by S&P of US debt provoked a storm.
Boyd Gaming Corporation lost more than 20% of share value. The debacle was also due to the US$0.5m. net loss on net profit margin for the first half of 2011. Isle of Capri lost 16.4% of its value even if it moved into a small net profit (US$4.5m) for the financial year 2011, when it had a loss in 2010. But the US$1.3bn debt was too much for the market.
But posting good results did not make much of a difference either. MGM moved from US$880m loss in H1 2010 to US$3.4bn net profit. Most of the net profit was fed from the IPO of its Macau unit (US$ 3.4bn). However, it was not enough from having 16.2% of its value wiped off. Ameristar Casino posted a 4.1% YoY increase in net profits to US$305m and still lost 7% of market value.
Bargain hunters will soon bring up some of these stocks, but if the turmoil persists in the US and Europe, many of these companies will struggle to regain their losses.