Following the resignation of Sports Minister Tracey Crouch, the UK government has bowed to pressure to bring forward the reduction in FOBT stake limits, from October 2019 to April 2019. To coincide with the FOBT changes, the planned increase in remote gaming duty (from 15% to 21%) will also commence in April. We reduce our FY19e EBITDA by a further £6m but our FY20 estimates are unchanged. JPJ shares have fallen by c 30% ytd and, despite the reduced EBITDA, trade at only 5.7x P/E, 7.5x EV/EBITDA and 15.1% free cash flow yield for FY19e.
Following the Budget announcement on 29 October and the resignation of Tracey Crouch, the government has brought forward the timing for the FOBT stake reduction. The move from £100 stake to £2 stake will now commence in April 2019 rather than October 2019. To coincide with the FOBT changes, the increase in remote gaming duty (from 15% to 21%) will also happen at the same time.
At Q318, the UK comprised c 56% of JPJ’s total revenues and the increase in RGD (from 15% to 21%) will have a c £12m annual impact on group EBITDA. As a result of an additional six months, we reduce our FY19e EBITDA by a further £6m. This one-off hit in FY19 represents 8p per share. At this stage we have not factored any mitigation into our forecasts and we continue to assume limited market growth due to the variety of regulatory burdens. Please see our 14 November Update for the recent Q318 trading commentary.
As a reflection of the uncertain UK regulatory environment, JPJ shares have fallen by c 30% ytd and, despite the EBITDA hit, trade at only 5.7x P/E, 7.5x EV/EBITDA and 15.1% free cash flow yield for FY19e. Despite the regulatory challenges, the online bingo-led business model remains highly cash generative and from next year we anticipate annual operating cash flow of c £90m. Continual debt reduction should lead to a 2.5x net debt to EBITDA ratio during 2019 (vs 3.0x at Q318) and we anticipate dividends next year.