JPMorgan lowers targets for gambling stocks on regulatory risks

It's hard to see any positive catalysts in the European gambling sector, according to JPMorgan Cazenove, which retained its cautious stance on stocks in light of regulatory risks.JPMorgan lowered its price targets for the majority of gambling stocks under its coverage.The bank said that despite significant negative share prices moves since the start of the year - Ladbrokes and William Hill have dropped 25% and 18%, respectively - the European gambling sector still trades well above its long-term average on a price-to-earnings (PE) basis. The average PE multiple is 16.7 compared with the historical average of 13.3."With UK regulatory uncertainty set to continue well into the second half of 2014 and minimal/negative earnings per share growth in 2015, we remain cautious," JPMorgan said.The bank believes that the UK government could announce regulatory restrictions as early as next week, though major changes are more likely after the Responsible Gambling Trust study is published this autumn."In time, we think that the regulatory focus could shift from UK Retail to Online (advertising is already being reviewed), which could put pressure on ratings across the sector."JPMorgan's only 'overweight'-rated stock in the sector if Playtech, where it sees upside from M&A and new business wins. Its target price for Playtech, however, has been cut from 880p to 825p.Meanwhile, the rating for Ladbrokes was left at 'underweight', while the target price was lowered from 100p to 95p. The bank said that in addition to Ladbrokes' high UK retail exposure, which accounts for 80% of 2014 earnings, consensus forecasts are "too optimistic" on underlying UK Retail conditions and a Digital turnaround.William Hill is also rated 'underweight', while Betfair and Paddy Power are rated 'neutral'.BC