Its analysts predicted that, while the government will cut the £100 per spin limit on roulette machines, a £2 per stake limit would be too costly in terms of lost jobs and taxes.
It forecast that a £2 limit would make Ladbrokes’ retail division barely profitable and halve group earnings, compared with a 25 per cent reduction if the stake limit is set at £20.
“Crucially, while consensus believes that a £20 limit is the most likely outcome, we also now believe that the market is unconsciously pricing in a worse scenario without realising it,” said Davy.
Once the review is out of the way, a second wave of consolidation can begin, the broker argued. The prospect of sector mergers “should provide substantial comfort to holders that, even in a worst-case scenario, equity value destruction is likely to be very limited indeed”, it said.
Ladbrokes closed 0.6 per cent higher at 129.3p after Davy set a 156p target.
The wider market suffered its sharpest fall since last year’s Brexit vote result, as Prime Minister Theresa May’s call for a snap election pushed the pound to its highest level since December. The FTSE 100 ended 2.5 per cent lower, down 180.09 points tat 7,147.50.
Mining was the day’s weakest sector on a combination of sterling’s strength and an extended slump for iron ore, which analysts blamed on oversupply and slowing Chinese steel demand.
BHP Billiton sank 5.6 per cent to £11.98 and Rio Tinto fell 3.8 per cent to £30.03.
Retailers were on the opposite side of the sterling trade on assumptions that their dollar-pegged purchasing costs were ticking lower. Marks and Spencer took on 1.9 per cent to 353.5p and Sports Direct, which warned in March about the impact of an expiring euro currency hedge, rallied 2.4 per cent to 318.6p.
Bovis Homes led the housebuilders higher, up 1.6 per cent to 926.5p, after Jefferies upgraded it to “buy” with a £10.41 target.
“Help to Buy has created a two-speed housing market with the new-build sector the beneficiary until at least 2021,” said Jefferies. “With highly visible cash flows we believe that cyclicality is on hold for at least a couple of years and we are comfortable in raising our price targets as a result.”
Esure faded 1.1 per cent to 238.6p and Hastings was 3 per cent weaker at 274.4p after Barclays turned cautious in a sector review.
An inflection in policy pricing has made motor insurers the best-performing insurance stocks over the past 18 months, meaning the stocks are now up with events, Barclays argued.
It advised selling Admiral, down 0.4 per cent to £20.20, citing a 35 per cent premium to sector peers.
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