Social and Germany to hit bwin.party bottom line
German gaming tax expected to reduce clean EBITDA by 10m " poker continues to perform below expectations.
Bwin.party has announced that the introduction of gambling tax Germany and its continued investment in social is to impact the group’s performance in the second half of 2012, with EBITDA expected to be down a further 5-10m as a result.
In the group’s pre-close trading update, announced this morning, the operator explained that while it still believes the modified version of the State Lottery Treaty signed by 15 of the 16 German Länder “once again fails to meet the tests already set by the jurisprudence from the Court of Justice of the European Union”, it will continue to operate in the market, paying the 5% tax on turnover as the treaty dictates, ahead of the opening of the licensing process which is expected to take place in the autumn, overseen by the central Land of Hesse.
This is expected to hit group EBITDA with an additional 5-10m in costs, on top of the expected 10m in costs accrued through the group’s 40m investment in social gaming, with the launch of its Win Interactive subsidiary in May following the acquisition of Ukrainian development studio Orneon Limited. Win, headed up by former Mytopia chief executive Barak Rabinowitz, has today announced the beta-launch of Poker Friends and Spinning Heads as the first products to be released by the division since its formation.
Commenting on the three months beginning April 2012, bwin.party announced EBITDA margins are expected to be higher than expected following the delayed opening of the Spanish market, with the intended marketing investment delayed until June. Early performance in Spain has been described as “encouraging”, with the group having secured “a top three market position”.
Despite the advances in Spain, concerns have been raised over the performance of the group’s core products, with sportsbook suffering from a lower than expected gross win margin, which even June’s Euro 2012 football championship was unable to offset. More striking, however, was the decline in poker, which the operator admitted had suffered due to Euro 2012, and the introduction of PokerStars’ fast poker client, Zoom Poker in May this year.
Despite bwin.party’s assertions that the pooling of the bwin and PartyGaming dot.com liquidity, due to take place in the second half of the year, would arrest this decline, Nick Batram of Peel Hunt issued a ‘Hold’ recommendation, citing the decline in poker: “While regulation is the main factor, the business’s underlying performance is also a growing concern, particularly the rate at which poker is going backwards.”
Since bwin.party shares began trading on 31 March 2011 at 194p, the share price has fallen to 105.4p at the time of writing “ a decline of around 46%. This, Batram explained suggests that the company could see further decline:
“At the current price, the market is suggesting that there is a real risk that EBITDA will fall to below 100m in the near future. While we believe that this is an extreme scenario, the reality is that visibility in the short term is unlikely to improve enough to drive a re-rating, hence our Hold recommendation,” he said.
Following the collapse of Shuffle Master’s proposed acquisition of Ongame, and Zynga’s subsequent interest in the poker network, as exclusively revealed by eGaming Review last week, bwin.party revealed that there are currently six parties looking to purchase the business.