Hedging bets on the fixed-odds limit

Betting shops rely on FOBTs — dubbed the “crack cocaine of gambling” for their addictive qualities — for more than half their profits so a maximum stake of £30 would represent a victory for the likes of Ladbrokes Coral Group, William Hill and, to a lesser extent, Paddy Power Betfair. Ever since the government announced a consultation in October on a cut to between £2 and £50, the feeling had been that it would opt for £2, with a cut to £10 seen as an each-way bet.

Before shareholders crack open the champagne, it should be pointed out that the commission’s pronouncement does not mean the maximum stake will end up at £30. As it is the government’s statutory adviser, ministers would normally be expected to follow its advice, but it is still only advice and, given the increasingly political debate on FOBTs, the odds of a cut to £2 have probably not moved that much. A recommendation that it be cut to “at or below £30” gives the government scope to opt for £2 without disregarding the commission’s advice.

Even so, there were plenty of anti-gambling campaigners ready to accuse the commission of caving in to industry pressure by not going for a £2 limit. But such criticism ignores the role of the organisation, which is duty-bound to put aside any politics or emotion in order to assess the issue purely on the evidence.

Its advice should also be viewed in the context of the wider package of measures it has put forward. These include a recommendation that the maximum stake on slots — more like fruit machine games — should be cut to £2 as they cause greater losses to players than the roulette-style games, although as they account for less than 10 per cent of play, the impact on bookies would be limited.

It also recommends greater use of “tracked play”, where betting is monitored to identify problem behaviour, which could affect shop revenues. Another hit could come from its proposed ban on punters playing both FOBTs and lower stakes B3 games in a single session. It also recommends the tightening up of aspects of online gambling, all of which could impact revenues.

While the commission insists it has based its recommendations on the evidence, the government may well take into account factors such as Treasury receipts and high street jobs. A report last year by KPMG for the industry suggested a £2 stake could force the closure of half the country’s betting shops with the loss of up to 20,000 jobs. It estimated a hole in Treasury coffers of £1 billion by 2020 and a £100 million hit on the horse racing industry in racing levy contributions and media rights.

There have been suggestions the Treasury is unwilling to countenance a £2 stake limit, but could live with a cut to £20. Such a figure would have the advantage of limiting the job losses at a time the high street is suffering amid rising costs and declining sales. For the government to add to those jobs woes at the moment would surely be perverse.
ADVICE Avoid
WHY Too many regulatory uncertainties cloud the immediate future for betting companies

Finsbury Food Group
There has been very little icing on the cake for Finsbury Food Group in recent years. The maker of celebration cakes and speciality bread has had to contend with rising butter prices and weak consumer confidence, forcing it to rework the recipe for its business.

Cost cutting has been the primary method, with the company driving efficiencies by investing more in automation, scaling back its workforce, experimenting with cheaper ingredients and cutting out its loss-making Grain D’Or croissant and pastry factory. An extra dose of price rises has also gone into the mix.

For now the plan appears to have passed the taste test. Yesterday the group reported profits of £8.4 million for the half year to December 30, up 6.3 per cent on the year before. Sales were stable at £144.8 million, up 2.5 per cent on a like-for-like basis.

Less than a decade ago the company had a stock price of just 12p. Its long-serving chief executive, John Duffy, has done well to return the company to health and to restore the dividend, with the interim offering increased by 10 per cent to 1.1p in the latest results. Analysts are impressed by the resilient performance but the challenge for Finsbury will lie in whether it can sustain the strategy.

Butter prices remain high and cocoa and egg prices have also been on the up. Wage stagnation and low confidence mean consumers are highly sensitive to price rises and are falling into the arms of heavy discounters, especially as inflation in the food market continues to creep upwards. The squeeze can be felt in Finsbury’s gross margin, which fell 70 basis points to 30.1 per cent but the company is well positioned to cope with the pressure thanks to a relentless focus on efficiencies.

But cost cutting can only go so far. Finsbury has also been striving to improve its product offering with new creative partnerships. A year ago it teamed up with The Great British Bake Off’s Mary Berry to launch a new range of cakes and it is preparing to launch another one with the vlogger JoJo Siwa. It has also built a “cake innovation centre” next to its factory in Hamilton, South Lanarkshire. The strategy is well balanced and sensible, making Finsbury worth exploring further.
ADVICE Buy
WHY Mixing resilience with growth despite headwinds