bwin.party Digital continues to struggle

Brazil may have hosted a memorable World Cup tournament, yet the past month has been anything but spectacular for gaming group bwin.party Digital. Already reeling from Amaya Gaming's takeover of PokerStars-owner Rational Group, and having quashed rumours it plans to either break up, or sell the business, an uninspiring second quarter does nothing to restore sentiment, or improve the share price.

Predictably, volumes and gross in margins from the FIFA World Cup were strong, but nothing more than expected. Both poker and casino were "soft" during the three months to 30 June and New Jersey's nascent online gambling industry is underperforming industry expectations. There are not-insignificant start-up losses there, too. With bingo flat during the period, group revenue was softer-than-expected revenue albeit on slightly better clean cash profit margins.

"As expected, the start-up losses in New Jersey, ISP blocking in Greece and the absence of domain sales in the first half have impacted both the revenue and Clean EBITDA [earnings before interest, taxes, depreciation, and amortisation] performance versus the prior year," explains chief executive Norbert Teufelberger.

"However, we are taking steps to improve operating performance, simplify decision-making, reduce complexity and costs and, as a result, remain confident about the full year outlook."

And cost-cutting is essential. Thankfully, Bwin is ahead of schedule here and should deliver an extra €10 million (£7.92 million) of savings this year on top of the €20 million already flagged. Management says it will spell out plans for further cuts in 2015 alongside half-year results on 29 August.

But Deutsche bank is sceptical. It reckons those extra cost-savings explain management confidence in doing the full-year numbers. "Pre these €10 million of new cost savings we think this implies a c.10% downgrade to current consensus EBITDA of €114 million which has fallen from €126 million in February," it says.

Deutsche downgrades full-year EBITDA forecasts by 18% to €101 million because of the weak revenue trends, and estimates of 2015 profit by 24% to €108 million. At 85p, and expected to make just eight euro cents per share this year, Bwin trades on 13 times forward earnings, which looks generous given declining poker and casino revenue, and the launch of casino games by PokerStars later this year.

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