Credit Suisse lowers forecasts for bookmakers on gaming duty changes

The share prices of UK bookmakers have taken a hit in the aftermath of George Osborne's 2014 budget, in which he unveiled an increase in gaming machine taxation and an extension of the horse racing betting levy to include offshore operators.Credit Suisse has responded to the news by cutting its forecasts and target prices for London-listed bookies Ladbrokes, William Hill and Paddy Power.The Chancellor announced on Wednesday that from March 1st 2015 the Machine Games Duty (MGD) will rise from 20% to 25%. The Treasury has since clarified that MGD will rise for both category B2 machines (casino games) and B3 machines (slot games), with the bookmakers and analysts having to revise their numbers. Credit Suisse estimates that B2 machines represent around 75% of the UK bookies' machine revenue.Meanwhile, the extension of the horse racing betting levy offshore will affect the online businesses at Ladbrokes, William Hill and Paddy Power. The levy is estimated to represent 10.75% of revenues from bets on UK horse racing.Credit Suisse said: "There is an argument that this constitutes state aid, and it could face a legal challenge. There will be a consultation held with the industry, and no timeframe has been set for implementation, however we include this incremental cost in our forecasts from the second half of 2015. Betfair [(rated 'neutral')] is unaffected as it already voluntarily pays the levy."The bank said that Ladbrokes, rated 'underperform', has the highest exposure to UK retail and will be most affected by these changes. It reduced its earnings estimates by 14% and 17% in 2015 and 2016, respectively, leading to a cut in the target price from 155p to 130p.Forecasts for William Hill and Paddy Power, both rated 'outperform', have been reduced by less. William Hill's target has been lowered from 445p to 400p, while Paddy Power's target has been cut from €65 to €61."We retain our ratings on each stock, with William Hill our top pick in the space," Credit Suisse said.BC