Pokies take a hit
VICTORIAN GOVERNMENT GAMING REGULATION PROPOSALS
Need To Know
- Victorian Government announced proposed reforms to gaming machines, capping load-up limits to $100, down from $1,000
- Changes are subject to industry consultation. We expect long-dated and gradual impacts, with risk to EBIT in the order of -2% to -5% over a three-year horizon
- Gaming newsflow is likely to keep a lid on the PE ratio of EDV, although at the current subdued share price, the risk is largely already embedded into the valuation
Investment Implications
The proposed Victorian Government announcement aims to reduce gaming harm and the risk of money laundering. The measures include lowering the maximum money placed into a machine from $1,000 to $100 and introducing mandatory pre-commitment and carded play as well as reducing venue operating times by two hours. NSW has also recently lowered the maximum amount an individual can put into a machine to $500 from $5,000, albeit this is only applicable to new machines.
EDV has significant gaming earnings in both Victoria and Queensland. The impact to earnings is likely to be small, although the actual impact to pre-committed play is difficult to quantify. A downside scenario of 2-5% is plausible, but we argue it may take several years to flow through.
Investment View
EDV's PE ratio is already somewhat depressed and reflective of gaming reform risks in our view. Given that the earnings risks are likely three years away, the market debate is focused on what a suitable PER is, where we believe the current valuation to be fair given its defensive earnings profile. We retain our Hold rating.
Stock Overview
Company Overview
EDV operates in the retail drinks and hospitality businesses in Australia. The company manufactures and sells drinks; and provides hotel-related goods and services, including food and drinks, accommodation, entertainment, and gaming.
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