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UK gambling: a busted flush

18th March, 18:16

All bets are off for the UK gambling sector -- quite literally when it comes to football's Euro 2020 or the Grand National horse race. A slew of events have been postponed or cancelled. High-street betting shops are closing as punters stay at home. Coronavirus has delivered a body blow to an industry hammered by tougher regulation and tech disruption.

Flutter, owner of Paddy Power Betfair, is heavily exposed to sports betting. This is mainly on football in the UK, where some horseracing continues. Sports betting accounts for almost 80 per cent of Flutter's £2.1bn in revenues. The group estimated this week that restrictions on sporting events until the end of August would reduce ebitda by £90m-£110m or about 25 per cent.

However Flutter looks more resilient than rivals, as implied by a mere 38 per cent share price drop since mid-February. It has a low trailing net debt to ebtida ratio of 0.7 times. But its free cash flow is skinny at £260m, according to S&P Global. A big hit to earnings would leave it needing to draw down a credit facility.

GVC has higher net debt to ebitda at 2.6 times, though covenants are a lofty 4 times. Free cash flow of £460m provides some protection. So does its range of online casino-style brands like Foxy Bingo.

William Hill, meanwhile, looks like the kind of horse whose condition prompts calls to the RSPCA rather than the bookie. This was once the UK's strongest gambling business. Thanks to mismanagement, it is now one of the weakest.

William Hill is tipped to default, dragged down by its retail estate and debts taken on to fund its US expansion. The group is in talks with its banks. Its shares are down around three-quarters since mid-February. With more US states poised to open up sports betting, William Hill could be an enticing purchase for a bottom-fishing acquirer.

They used to say in gambling, only the bookies ever won. These days, the odds favour distressed debt investors.

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