Analysts back British gambling firm stocks despite tax rises for sector

Paddy Power owner Flutter and other betting and gaming firms say higher online gambling taxes will hit profits hard

Financial analysts have advised buying shares in British gambling companies, despite the sector’s biggest players being hit with tax rises that forced them into issuing £1bn of profit downgrades.

Duty rises announced in Rachel Reeves’s second budget as chancellor, targeted at online betting and gaming, are set to cost the industry an extra £8.3bn by 2030-31, according to the Office for Budget Responsibility (OBR).

Firms have responded by warning of job losses and an exodus of punters to illicit websites, which will be able to continue offering bonuses to woo punters, even as the licensed sector hacks back such incentives to cut costs.

But a flurry of City analysts defied the gloom on Thursday as a mixed picture began to emerge of the likely impact on the sector.

Deutsche Bank declared the budget “a clearing event which improves the near-term outlook of the UK gambling sector” and rated gambling stocks a “buy”. UBS maintained its advice to buy Entain stock, while Jefferies advised buying every listed player in the sector.

Analysts focused on the removal of long-lasting uncertainty over tax rates and the ability of large, diversified players such as Entain and Flutter – the owners of Ladbrokes and Paddy Power respectively – to mop up market share from smaller rivals that cannot cope with the duty rises and are forced to retrench.

On Thursday, the online bookmaker Macbet Sports said it could no longer offer football bets, after general betting duty for sports wagers placed online was increased from 15% to 25%. Another small bookmaker, BetGoodwin, said it would cease all of its horse-racing sponsorship.

Perhaps the biggest cloud hangs over Evoke, formerly known as 888 Holdings, which bought William Hill for £2.2bn in 2021. Its stock market value has slumped to just £133m this week, after a 17% fall since the budget.

Rank Group, which owns Mecca Bingo, initially saw its stock market value surge after the government said it would abolish the 10% tax on bingo takings. But the company is also a significant player in online casinos, affected by a duty increase from 21% to 40%, and said it expected an operating profit hit of £40m. Its stock came down nearly 8% the day after the warning, erasing most of the gains.

Entain is worth more than 3% since the duty rises were announced, while Flutter Entertainment, the owner of Paddy Power and Betfair, has risen by a similar amount.

On Wednesday evening after the budget, Flutter, whose primary listing is in New York, said the move to increase UK gambling taxes would hit its annual profits by $860m (£650m) over the next two years.

Flutter is by far the biggest listed gambling company with a major UK presence, through a stable of brands that also includes SkyBet, as well as a large US footprint including the FanDuel business.

Extra taxes will affect its underlying earnings by about $320m in 2025-26 and $540m in 2026-27, the company told investors. It hopes to offset the hit by up to 40% by 2027 through cutting promotion and marketing spend, and wider cost reduction efforts.

Kevin Harrington, Flutter’s UK and Ireland chief executive, said the tax increases were “a very disappointing outcome and will have a significant adverse impact on our industry. The chancellor rightly wants to address harm, but these changes will hand a big win to illegal, unlicensed gambling operators who will become more competitive overnight. These black market operators don’t pay tax and don’t invest in safer gambling.

“At 40%, the UK’s remote gaming duty is now above countries such as the Netherlands, where a recent tax increase saw a rise in illegal gambling and a fall in government receipts.”

He added that “through both our scale and leading position in the UK, as well as the proactive cost initiatives that we are taking” the company was “well placed to navigate” the changes.

His counterpart at Entain, Stella David, had earlier said she was “deeply appalled” by the tax rises, while the UK industry’s lobby group, the Betting and Gaming Council (BGC), said Reeves’s decision was a “devastating hammer blow”.