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Broker Views: Gambling and fitness

15 February 2017 15:09

Equity analysts at HSBC have been analysing the UK bookmaking sector, which they say is in light of a potential consumer slowdown and growing regulatory risks.

The bank commented that while early 2017 sports results have been helpful, it thinks the longer-term risks are large and not fully in valuations.

Commenting on the risky nature of the industry, HSBC said: "Gaming stocks face a series of risks in the months ahead.

"Threats around machines are well understood, but we must also consider the possibility of a consumer slowdown as well as other risks, such as intense competition online, tightening regulation and higher levies/taxes."

HSBC has therefore downgraded its recommendations on William Hill (LON:WMH) and Ladbrokes Coral (LON:LAD) to reduce (from hold) and Paddy Power Betfair (LON:PPB) to hold (from buy).

Meanwhile, N+1 Singer has initiated coverage of Gym Group (LON:GYM) with a sell recommendation and 145 pence target price of 145 pence, despite commenting that the low-cost gym operator has done an excellent job in successfully rolling out a disruptive business model in the health & fitness market.

"However, we think growth expectations are too high and the shares look expensive on a FY17 P/E of 27x," Analyst Sahill Shan explained.

"We expect initial signs of increased competition / cannibalisation and LFL pressure to increase over the next 2-3 years and the shares to de-rate."

At 3:09pm:

(LON:GYM) The Gym Group Plc share price was -3p at 193.75p

(LON:PPB) Paddy Power Betfair share price was -182.5p at 8367.5p

(LON:WMH) William Hill PLC share price was -7.2p at 264.8p

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