Web-based bookie Sportingbet (LSE: SBT) tickled investors with a third-quarter profit boost driven by active European and Australian gambling markets.
Net income of £3.4m in the three months to April is a lot better than the £62.4m loss the year before. The number of bets placed was up a quarter, at £364m, with Euro and Aussie punters making up 96% of that revenue. This sparked a rise in the shares and analysts think the firm has turned the corner.
But there is still much further to go. The group’s shares slumped 30% in the past 12 months as the loss of an audience in the US, where online gambling was outlawed in October 2006, hit profit forecasts and broker recommendations knocking Sportingbet’s market cap down £50m.
The brokers now see an opportunity, "[The results] clearly demonstrate that Sportingbet has regained positive momentum across the group,'' said Richard Carter at Numis Securities.
With major football contest Euro 2008 kicking off this summer, the firm is "confident of meeting" forecast earnings of £7m for the year.
It’s not all good news mind you. Some Sportingbet employees were arrested by the Turkish authorities last Thursday.
The nature of the arrests is suspect as Sportingbet has previously locked horns with the state-backed gambling business Spor Toto. With the investigation ongoing, McIver reassured investors, "It's had absolutely zero impact on our operations in the area."
Having made £200m in Europe in the third quarter, and bullish forecasts for the region, this much is evident.
Gambling Is FTSE’s Safest Bet
The betters market might be a great ‘recovery stock’ play.
The sector had its wings clipped in November 2006 when US authorities — in what was widely panned as a protectionist move — banned online gambling Stateside. This had a punishing impact on industry players like Sportingbet and 888 but it was PartyGaming that suffered the most agonizing fall from grace.
The bookie’s shares fell so hard that FTSE index experts took the unprecedented step of booting PartyGaming out of the FTSE 100 without waiting for the quarterly rebalancing.
However, like a phoenix from the flames, all three firms are back in the black.
888 recently boasted 2007 results way ahead of estimates and nudged forecast 1% higher for 2008. PartyGaming also posted "strong growth" and a 21% hike in first quarter revenues.
The stocks are being plugged as a recession-proof industry. This belief, propagated by 888 chief executive Gigi Levy, is based on the rationale that as the economy heads south, people are more likely to stay in and log on than go out.
Not only that, but the gamblers might also get some closure on the American situation. Sportingbet and PartyGaming sat down with the US Department of Justice to try and reduce any fines against the two firms that ‘illegally’ took bets from Americans before the sites were barred.
Sources close to the matter suggest that these talks are going very well... PartyGaming’s shares have rallied as relieved investors look forward to finally putting this circus behind them.
IG Group Spreads Its Operations
Looking for another way to speculate on other people’s speculations? Take a look at IG Group. This spreadbetting and CFD group are doing a fine trade through the market turmoil, specialising as they do in short-term trading services.
Following up soaring revenues in March, IG has produced a bullish trading statement that "current trading remains strong" and the firm is optimistic on the full-year prospects.
Trading is expected to be 50% higher at around £184m from £122m the year before driven by expansion in France and Spain.
"While it remains difficult to predict future trends in volatility or customer reaction to any change in market conditions, IG is well positioned for further growth," the company said in a statement.
A growing business, still in its infancy... IG Group looks like a good move.
However, as with Sportingbet and 888, this virtual gambling business is subject to potentially market-changing legislative risk. The weaknesses were clear in November 2006.
Should a government introduce new laws to curb gambling, and they tend to with these ‘vice stocks’ — smoking, alcohol and gambling — then the afflicted firms would be painfully short on options.
If smoking were outlawed worldwide, British American Tobacco would still have a stockpile of valuable physical assets. With online businesses like Sportingbet and IG Group, the core business is the only business. This represents huge potential volatility, as long-time investors in these markets will attest.
There is a less risky way to capitalise on ‘recession-proof’ shares. An opportunity, currently running in The Fleet Street Letter, that has already turned a profit for subscribers.
Theo Casey
P.S. If you enjoyed this article then we encourage you to sign up for the free Fleet Street Daily eletter. Learn what you can expect from today's markets -- and how to prosper in the face of uncertainty. You won't find more thought provoking writing anywhere on the Internet.
