Image © Gov.uk

The UK government could raise taxes on the UK's gambling sector, and analysis from Wall Street Bank Goldman Sachs says Entain is likely to be hit the hardest. The potential for higher taxes in the UK has re-emerged after an article in The Guardian on October 11 reported that the Treasury is considering proposals to raise certain gambling taxes in the Budget on October 30.

Analysis from Goldman Sachs assesses a severe scenario in which all online gambling taxes are doubled in the UK and assumes 50% mitigation. The analysis notes that in this scenario, the impact on Group EBITDA would be approximately 10% for the UK's two publicly listed providers of gambling services, Flutter and Entain.

However, Goldman Sachs analyst Ben Andrews says this would involve a disproportionately higher impact for Entain at the net income level and on equity value. It was reported on October 11 that the UK Treasury is seeking to raise £3BN from this tax as it looks to plug an estimated £22BN budget shortfall in the October 31 budget. (30 or 31?)

The tax would be levied across the industry, with smaller players also expressing concern. "If introduced, the rate hike would see a significant increase in the duties paid by online casinos and bookmakers," says a response from Oliver Casino. "Operators that cater to the UK market, like Oliver Casino, may be significantly affected by this."

Shares in Entain dropped 10% on the news of potential taxes, while those of Flutter fell 8.80%. Derren Nathan, head of equity research at Hargreaves Lansdown, says that Entain’s recently reported positive earnings results for the third quarter, driven by improved online-based revenues.

"But domestic high street betting shops are still in decline, however, with NGR dropping 2%," says Nathan. "For now, the core markets are holding up well and there are some attractive growth opportunities in train, but there is some pressure to keep delivering no matter what way the odds are stacked," he adds.