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The UK has confirmed that it will reducing the maximum stake for fixed odds betting terminals from £100 to £2, creating worries that the number of betting shops on UK high streets will be decimated. This move places a lot of pressure on betting firms that have greater online scale, but should investors be dumping their stock?

William Hill says that as many as 900 of its stores could become loss-making in yet another blow to the UK high street. Investors will also be wondering whether the government will be increasing taxes on online betting in order to recoup the money that it used to receive from gambling machines.

Such a move would be a double blow for companies with both high street and online betting operations as both of these events would take a big bite out of earnings.

“It’s amazing to think shares in gambling companies were racing ahead at the start of the week thanks to potential changes in the US market regarding sports betting,” comments Tom Selby, a senior analyst with broker AJ Bell. “Reality has quickly come back to haunt them and it is back to crisis management mode as companies work out how they are going to protect their earnings as much as possible.”

William Hill shares: cheap price to provoke takeover?

Amid all this turmoil, William Hill is looking vulnerable to a takeover bid, particularly as it already has a foothold in the lucrative US market. William Hill seems to have finally resolved its difficulties in the Australian market and has been consolidating its US position, where it made three acquisitions in 2011. But there is an increased likelihood that it could be the target of an acquisition, for example a trade buyer or a private equity firm.

Since the death of its founder in 1971 William Hill has had six different owners, including Sears, Grand Metropolitan and Brent Walker. It was bought by a private equity consortium in 1999 before being listed on the London Stock Exchange in 2002.

A prior bid from Canada-based Stars Group and a joint approach from 888 and Rank both fell apart in 2016 but it is obvious that the bookmaker could well become a target again if its share price gets cheap enough. William Hill shares are currently trading at nearly 40% below five year highs.

Shares in bookmakers looked fairly robust in early trading in London: companies like Paddy Power and GVC have developed a robust operating strategy that is actually less reliant on high street punters and relies more heavily on the online high rollers.

William Hill shares were trading slightly up at 328.80 this morning, having plunged just below 300 slightly after the open. Paddy Power shares are actually well north of where they were last week. Paddy Power shares were trading at 48 in the middle of last week and are now up more than 3% since then, despite all the bad news.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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