By Cristina Gallardo

British gambling stocks fall dragged by reports of government plans for a new tax raid on the industry.

Shares in London-listed Evoke, Entain, Flutter Entertainment and Rank Group tumbled Monday on the back of the reports, which suggest that the U.K. government is aiming to raise up to 3 billion pounds ($3.92 billion) from the sector.

The tax plans, which could be confirmed in the U.K. budget on Oct. 30, pushed Evoke’s shares down by 14.38% to 560 pence, Entain’s shares down by 13.2% to 6.6 pounds, Flutter’s shares down by 7.6% to 171.25 pounds, and Rank Group down by 6.5% to 81 pence.

The government plans come as the U.K. Treasury looks for ways to reduce a 22 billion-pound “black hole” in public finances that Chancellor Rachel Reeves said her department discovered when the Labour party reached power after the July general election.

The measures under consideration include doubling some of the taxes levied on online casinos and bookmakers, such as the 15% general betting duty on high-street bookmakers’ profits, the Guardian newspaper first reported on Friday evening.

However, market reaction to the plans could be overdone, said Goodbody analyst David Brohan.

“While it is clear the focus will now be on tax increases for the sector in the upcoming budget, we expect any increases to be moderate in line with the economic importance of the industry,” he wrote in a note to investors.

Taxes on the British gambling industry haven’t gone up since 2019, when the rate of Remote Gaming Duty increased from 15% to 21%. This duty appears to be an easier target for the U.K. government this time around than taxes on sports betting given the emotive issue of horse-race funding in the U.K., Brohan said.

An increase of between 3% and 5% of the Remote Gaming Duty seems realistic, he said, noting that every 1% increase could reduce adjusted earnings before interest, taxes, depreciation and amortization by 0.6% in the case of Flutter, 0.7% for Entain, 1.6% for Evoke and 2% for Rank.

Although these stocks may experience some weakness Monday, the U.K. budget shouldn’t prove to be an existential crisis for the sector as some people feared on Friday, when Flutter’s shares in the U.S. fell by 8%, Brohan said, adding that U.K. tax rates on gambling companies remain comparatively low.

“The headlines have since faded to the backpages, with limited media follow-up elsewhere,” Jefferies analysts said.

If the government confirms these plans, gambling companies are expected to cut marketing and promotion costs, reduce sports sponsorship, and offer less favorable odds to customers, the analysts added.

Smaller-scale bookmakers, however, would struggle to absorb the tax costs and are likely to lose market share to larger competitors, they said.

Write to Cristina Gallardo at cristina.gallardo@wsj.com

(END) Dow Jones Newswires

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