Market Briefs (Oct. 21-25)

28 October 2002

Ernst & Young Advises Caution in Gaming Investments

Ernst & Young predicts in a recent report on the U.K. gambling industry that in the next five years, online gambling will be a nearly $10 billion per year market, with the United Kingdom being responsible for $1 billion of that.

The company predicts that the two most influential developments in the gaming industry will be progressive gaming machines and the spread of Internet gambling. A social backlash against the expansion of gambling opportunities could also occur, it said.

Ian Wilkie, a gaming expert at the firm, said that while opportunities exist for investors to have success in both online and land-based gambling companies, there is also the possibility for failure.

"People who think that the liberalization of the U.K.'s gaming laws is a license to print money are in for a very rude shock," he said. "Both the pace and the extent of changes in the gaming industry are going to be huge, but it is very complex and the potential is there for investors to lose as much money as they might win. It really is a case of 'look before you leap.'"

Wynn IPO Raises $450 Million

Wynn Resorts, Steve Wynn's gaming company, has raised $450 million in its initial public share offering by reducing the share price by up to 43 percent. The company has sold 34.6 million shares for $13 apiece.

Earlier in October, the company had priced the shares at $21 to $23 each. Wynn and his business partner, the Aruze Corp., are buying shares worth $145 million.

The IPO was held to fund La Reve, a casino Wynn plans to build in Las Vegas, to the tune of $2.4 billion.

Wynn sold Mirage Resorts Inc. to MGM Grand in 2000 for $6.4 billion.

William Hill Expectations Stand

Last week, news service Reuters reported that William Hill (WMH) is not planning to scale back its earnings expectations after its recent run of bad horse racing results. Instead, the land-based and online gaming company says it may start to see positive results from the recent rainy weather.

Wet weather benefits the company because when racing fields are dry, their size is reduced. Also, when horses don't run on firm ground, a higher portion of favorites is statistically likely to win.

Tom Singer, the company's group finance director, said if the company were to scale back expectations, it would be announced.

"If we felt that we weren't going to meet market expectations, we'd feel obliged to say something," he said. "We haven't said anything because that's not our view."

Tab Expects EBITDA Growth in 2003

The managing director of Tab Ltd. (TAB) said Wednesday that the firm expects to see EBITDA growth in 2003. Warren Wilson said Tab's does not, however, expect the growth in EBIT to be as high as the growth in EBITDA.

He said the situation is due to "full effects of capital expenditure in earlier years." Because of that, he said, an increase in depreciation and amortization can be expected in 2003.

"In addition, interest expense will rise in 2003 as a result of the full-year effect of the debt funding of the company's share buy-back," he said. "This is anticipated to constrain net profit after tax, but earnings per share are expected to show real improvement."

Meanwhile, Tabcorp Holdings Ltd. (TAH) could possibly have lost 22 percent of its September revenue due to its ban on smoking in casinos.

Kerzner Conference Call Oct. 30

Kerzner International Ltd. (KZL) will hold a conference call to discuss its third-quarter results on Oct. 30 at 11 a.m. EST. To hear the call, dial 877-371-3550 from the United States and Canada and 706-679-0864 from everywhere else. The call will also be available on the company's Web site, www.kerzner.com. A recording of the call will be available from Oct. 30 to Nov. 1 by calling 800-642-1687 from the United States and Canada and 706-645-9291 internationally. The access number is 6297278.

Report Released

Penn National Gaming Inc. (PENN) is reporting an 18.2 percent in EBITDA to $38.1 million from $32.2 million in the third quarter last year. The company also experienced a 28.9 percent increase in net income to $9.9 million. Revenue increased 21 percent to $175.4 million from $145 million last year.

  • Penn National Gaming Inc. (PENN) - Third Quarter Report

    MGM Mirage (MGG), which recently launched an online casino, is reporting third-quarter diluted earnings of 51 cents per share. Income before pre-opening expenses, restructuring, write-downs, impairments and extraordinary items was $81.1 million, compared with $30.1 million last year.

  • MGM Mirage (MGG) - Third Quarter Report