The announcement by indebted Czech national lottery provider Sazka on Wednesday that it plans to cease all of its numerical lottery activities with immediate effect is a positive development for Fortuna Entertainment Group (FEG), the Prague- and Warsaw-listed fixed-odds betting operator, analysts say.
“The escalation of Sazka’s problems and its potential temporary withdrawal from the lottery business is good news for Fortuna, which should launch its jackpot game in mid-July (lottery scratch cards were launched on May 16),” Wood & Co. analyst Erik Hegedus said in a market comment on Thursday.
Sazka, which has been in insolvency proceedings over the past four months, had made the announcement in a letter to the Finance Ministry and its bankruptcy trustee. The development reflects Sazka’s dire financial situation (its inability to pay out winnings) and the ongoing disputes between its management and its main creditors over its future and the form of its restructuring.
Sazka’s creditors’ committee is meeting Thursday to decide upon its future, and it is likely that the company is going to be declared bankrupt in the coming days, with a lengthy restructuring process (or an actual break-up of the company) likely to follow, Hegedus said. ‘Despite the potential new entrants in the market and Sazka’s eventual re-emergence, we believe that Fortuna has a great chance to secure a significant market share in its early days.’
“Despite the potential new entrants in the market and Sazka’s eventual re-emergence, we believe that Fortuna has a great chance to secure a significant market share in its early days (in an approximately €150 million lottery market in gross win terms in 2009) and build up its brand and bettors’ confidence in the segment,” he said.
In Wood & Co.’s April update, the brokerage highlighted different market share scenarios and the target price based upon the speed of the lottery business. “In the current situation, our initial assumption may prove to be conservative and imply further upside to the share price,” Hegedus said.
Controlled by Czech-Slovak equity group Penta Investments, Fortuna is the largest operator of fixed-odds betting in Central and Eastern Europe, as measured by total amounts staked at retail points of sale.
Fortuna’s net profit reached €17.4 million in 2010, up 2.6 percent year on year, aided by growth in the on-line betting segment, a trend that the company said should continue this year. Its revenues rose 8.8 percent on the year to €81 million, and EBITDA (earnings before interest tax depreciation and amortization) rose 6.6 percent to €25.1 million.
