KPMG eGaming Summit 2016Market View: The Gaming Sector

September 2016

Simon French, Cenkos Securities

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Market size and growth: in total, by product and by geography

Advancement of mobile and UK's leading role in it

The changing landscape of the major players in the market

M&A - why and why now, success and failure

Public v private ownership

Public market view of eGaming

Attractiveness of eGaming companies

Regulatory and political risk

30 minutes to cover

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eGaming market overview

$38.5bn GGY in 2015

CAGR of 8.3% since 2006

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p

eGaming GGY 2006-15 (US$m)

Source: GBGC

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eGaming market overview

$38.5bn GGY in 2015

Dominated by Europe

eGaming GGY 2015

Source: GBGC

42%

27%

2%

20%

2%7%

Europe Asia Central & South America North America Africa Oceania

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eGaming market overview

$38.5bn GGY in 2015

Dominated by Sports betting

eGaming GGY 2015

Source: GBGC

58%27%

9%

6%

Sports betting Casino Poker Bingo

6

Mobile revolution

2016 c3x the previousEuropean Championships

H1 2016 mobile sportsbook stakes/NGR %ge

Source: Cenkos Securities

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

Ladbrokes William Hill Coral Group Paddy Power Betfair

7

UK at the forefront

c3.5x penetration of Asia

Playtech software revenues: mobile penetration

Source: Playtech

0%

10%

20%

30%

40%

50%

60%

H1 2013 H1 2014 H1 2015 H1 2016

Group Group ex UK UK

8

The changing landscape

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The changing landscape

2015

One large player

Leading eGaming companies 2015 NGR (£m)

Source: Cenkos Securities

0

200

400

600

800

1000

1200

1400

1600

Bet36

5

Am

aya

William

Hill

Pad

dy P

ow

er

Betfair

bw

in.p

arty

Un

ibet

88

8 H

old

ings

Betsso

n

Gala C

oral

Ladb

rokes

Sky Bet

GV

C H

old

ings

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The changing landscape

2016

3 mega mergers

Leading eGaming companies 2015 NGR (£m)

Source: Cenkos Securities

0

200

400

600

800

1000

1200

1400

1600

Bet36

5

Pad

dy P

ow

er Betfair

Am

aya

William

Hill

GV

C b

win

.party

Ladb

rokes C

oral

Un

ibet

88

8 H

old

ings

Betsso

n

Sky Bet

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M&A – why and why now

Why?

Cost synergies

Enter new geographies

Exposure to new products

Acquire new skill sets

Accelerate earnings growth

Buy talent

Diversify

Reduce risk

Why now?

Market growth is slowing

Regulation is increasing

Taxes are rising

Technological change is accelerating

Marketing costs are increasing

A couple have worked

Everyone else is doing it

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M&A - success and failure

The Good

Paddy Power-Sportsbet

Betfair-Blue Square

Paddy Power-Betfair

GVC-bwin.party

GVC-Sportingbet (ex Australia)

The Bad

William Hill-Sportingbet (Australia)

bwin-Partygaming

Bwin-Ongame

Sportingbet-Paradise Poker

Rank-Blue Square

The Ugly

Partygaming-Empire Online

Ladbrokes-888

William Hill-888

Rank-888-William Hill

Amaya-Rational

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The Public Markets and eGaming

Three financial centres of excellence for eGaming:

London, Stockholm and Toronto

At least 14 gaming companies listed in London

More likely to follow

Intertain/JackpotJoy

Access to investors who have understanding and experience of the market

Sportingbet floated on OFEX in 1999

Deep pools of capital

Combined mkt cap of c£19bn

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Public Market View of eGaming Companies

Large, growing, global industry with small number of large players and largenumber of small players:

Growth rates framed by regulatory and technological change

High margins and strong cashflow conversion should lead to relatively highand progressive dividend payout policies

Regulated markets warrant a premium to reflect earnings security

Consolidation inevitable and will drive synergies, grow margins and increasemarket share

Industry will crunch down to 2-3 large global players and long tail of nicheoperators

The U.S. will ‘never’ regulate

15

Scale benefits

EV/EBITDA multiple v EBITDA

Source: Bloomberg, Cenkos Securities estimates

0

50

100

150

200

250

300

350

400

450

500

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

EV/EBITDA

EBITD

A £

m The bigger the EBITDA thehigher the multiple

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High margins

EBITDA margins

Source: Bloomberg, Cenkos Securities estimates *Online ex Australia

But significant disparity inamongst leading operators

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%

888 Holdings

32Red

Gaming Realms

GVC Holdings

Ladbrokes*

NetPlay TV

Paddy Power Betfair*

Playtech

William Hill*

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Leads to high dividend payments

Dividend yields

Source: Bloomberg, Cenkos Securities estimates *Online ex Australia

Above average dividendyields relative to the market

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%

888 Holdings

32Red

GVC Holdings

Ladbrokes

NetPlay TV

Paddy Power Betfair

Playtech

William Hill

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Regulatory and political risk

Licensing

Tougher talking (and action) from Gambling Commission

Anti-money laundering

4th EU Directive

Advertising

New research suggests gambling advertising may be harmful

Countries ex UK clamping down

Sports integrity and funding

Match-fixing

Horse racing Levy/ Levy Replacement

Extension to other Sports?

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Regulatory and political risk continued

Taxation

Current UK regime relatively generous by European standard

Sector’s growth has lead to increase in visibility of problem gamblingamongst eGaming players

RGT research project may result in further adverse publicity

Possible increase from 15% to 20%

Would raise £175m p.a

HM Treasury ongoing review of input VAT exemption for offshorecompanies

Brexit

Status of overseas territories

Rights of workers

Forthcoming issues

eSports betting, Daily Fantasy Sports, Social Gaming

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What we like

Broad geographic diversity:

Regulated markets are not a panacea

Proprietary technology

Drives greater synergies in consolidation

Strong balance sheets

To enable participation in consolidation or return of value toshareholders through increased dividends

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Summary

Large global market dominated by Europe and Sports betting

Market growing but slowing

Management teams changing as market matures and consolidates

UK leads the world on mobile – plenty of growth to come

Consolidation not inevitable (because it doesn’t work very often)

London is the financial centre for eGaming but doesn’t mean views are right

Investors attracted to cash generation and subsequent dividend income

Heightened regulatory and political risk given macro backdrop

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