Analysts assess the impact on
-Regulatory risk rises for
-Implementation delays and uncertainties make forecasting difficult
-Following yesterday's share price fall, some brokers see value
-Risks posed by other states and more stringent reforms
Brokers generally lower their 12-month target prices for
Wider risks to group earnings could also emanate from other Australian states with similar or more stringent reforms, such as the default limits being introduced in
The company operates a retail drinks network across
By the end of 2023 the Victorian government will introduce mandatory pre-commitment limits (i.e. a self-nominated maximum loss) and carded play linked to patrons' identities, as well as new load-up limits capped at
The spin rate for new machines will be reduced to three seconds from just over two seconds and there will be mandatory venue closure periods
There are no mandatory loss-limits prescribed by the regulations and no implementation timeline has been announced.
Given the complexity of changes involved and pending consultation with industry via an implementation working group, the reforms will take some time before commencing, making it difficult for anyone to fully assess the impact on Endeavour's earnings in the here and now.
The company signed a ten-year gaming entitlement with the Victorian government in August last year, which didn't include the announced gaming changes, and
As a result of these delays and uncertainties, Morgans makes only minor changes to its FY25 earnings forecast, yet downgrades its rating to Hold from Add on the greater regulatory risk, while awaiting further commentary at the FY23 result release scheduled for
This change by Morgans is the most dramatic made by brokers monitored daily by FNArena; its new target of
Underweight-rated Morgan Stanley continues to see regulation as a medium-to longer-term earnings risk and reduces the multiple applied to its price/earnings valuation.
This broker feels the introduction of carded play (cashless gaming) will likely lead to the exclusion of the current cohort of users who are opposed to registered play, as anecdotal evidence from loyalty programs and cashless trials in
On the flipside, an offset to this headwind may occur as more ease of use may attract the younger generation and motivate an increase to their overall play.
While Accumulate-rated
This broker, which white labels research on Endeavour from Morningstar, believes NSW will follow with its own reforms. When these NSW reforms are combined with the new Victorian regulations, it's thought overall earnings for the group will fall by a moderate -7% from fiscal 2025, with the valuation impact partially offset by the time value of money.
The current share price screens as undervalued, in Morningstar's view, and while the reforms are expected to weigh on long-term earnings, around 60% of earnings derive from Endeavour's Retail segment, which is unlikely to be impacted by the new regulations.
Management noted it does not expect a material impact on gaming revenue or earnings and Goldman Sachs agrees.
This analyst estimates around 38% of the group's gaming machines and 30-35% of its gambling revenue derives from
Wider long-term risks
A greater danger to group earnings would occur if default limits were introduced.
Currently,
This broker suggests the new load limits, lower spin rate and shorter trading hours are manageable for Endeavour.
The proposed new regulations by
Macquarie notes the increasing risk of the government in
At the same time, this broker points out gaming regulation is a slow-building risk, with changes likely be slow as governments need time to determine how to best offset the associated decline in tax revenue.
FNArena's daily monitoring of
The average target price of the five brokers falls to
Buy-rated Goldman Sachs (target
FNArena is proud about its track record and past achievements: Ten Years On
All material published by
© 2023 Acquisdata Pty Ltd., source