Online betting and entertainment companies took a hit when the U.S. restricted Internet poker sites in 2011. Bwin.party digital entertainment plc (BPTY.L) is a global online gaming company that’s going through a transition. Should investors double down or walk away from the table?
Bwin.party is a member of the FTSE250 and was one of the players affected by the online poker ban in the U.S. It has positioned itself to re-enter the market once online poker is liberalized again. However, in the meantime, bwin.party is trying to increase profitability. Based on the negative StarMine Predicted Surprise of 22%, it looks like the company is likely to miss expectations when it reports full year earnings on March 10, 2014.
Source: Eikon/StarMine
Analysts unimpressed
Bwin.party has a StarMine Analyst Revisions Score of 3, which is an indicator of bearishness on earnings. Analysts have lowered estimates for the whole year from €0.14 a share to €0.09 a share. The SmartEstimate, which puts more weight on the more accurate analysts and the most recent estimates, is even lower at €0.07 a share. Since the beginning of November, all five analysts who have changed their estimates have lowered them to below the consensus.
According to CEO Norbert Teufelberger, 2013 was a year of transition. That is usually an indicator of a weak year, as a company sets up to perform better in the future. To add to its woes, online gaming was banned in Greece and that is likely to dent earnings further as reported in this Reuters News story. Teufelberger attributed 4% of the company’s revenue to Greece and the gambling block will see that revenue drop off.
The trailing two half-year operating profit margins have been steadily declining over the last four years and after briefly turning negative in the last period, have slightly recovered, albeit to a weak 1.1%. Those weak margins are likely to continue in 2013 as the company goes through the “transition.” However, earnings do not seem to be of high quality, according to the weak StarMine Earnings Quality (EQ) model score of 2. That indicates that earnings are not coming from sustainable sources.
Source: Eikon/StarMine
An uncertain outlook
So while bwin.party is in the midst of a transition year, it looks like future earnings prospects will look up once the ban on gambling ends in major markets like the U.S. But that will not help profits this year and the company will likely hold a losing hand when it reports results.
SMARTESTIMATES AND THE PREDICTED SURPRISE %
SmartEstimates: StarMine Professional quantitatively analyzes the earnings estimate accuracy of sell-side analysts and uses this information to create proprietary
SmartEstimates®.SmartEstimates help you better predict future earnings and analyst revisions with estimates that place more weight on recent forecasts by top-rated analysts.
Predicted Surprise %: The Predicted Surprise% is the percentage difference between the SmartEstimate and the I/B/E/S consensus estimate. When SmartEstimates diverge significantly from consensus, it serves as a leading indicator of the direction of future revisions and/or surprises. In aggregate, this indicator gets earnings surprises directionally correct 70% of the time.
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