Gambling group Novomatic puts flotation plans on hold

FRANKFURT/VIENNA (Reuters) - Gambling technology group Novomatic [NVMTC.UL] said it has put plans for an initial public offering on hold due to uncertainty over new regulation in one of its most important markets, Germany.

The logo of Austrian gambling group Novomatic is seen at a building in Vienna, Austria, April 7, 2017. REUTERS/Heinz-Peter Bader

The Austrian firm had been expected to publish its intention to float on the Frankfurt stock exchange this week, but said it is no longer targeting a 2017 listing, declining to elaborate.

The IPO was seen valuing the company, which makes slot machines and is also the largest operator of gambling halls and casinos in Germany, Italy and Britain, at more than 5 billion euros, which would make it one of the largest listings of an Austrian company in years.

New rules in Germany mean gambling halls need to be 100-500 meters apart from each other, and each can only hold one license to host up to 12 gambling machines. Novomatic has a market share of 53 percent in the country.

“The implementation of the new German regulation is filtering through more slowly than expected and it is difficult for investors to fully assess the effect on Novomatic’s business,” said a person close to the matter.

The company took a more bearish view on its expected earnings and would have had to present a new set of figures to the analysts, who have worked out how to value the company, another person said.

“It was effectively a profit warning,” that person said.

Added to this, the acquisition of Australian peer Ainsworth AGI.AX, which is expected to contribute 50 million euros ($59 million) in annual core earnings, has not yet been completed, the first source added.

Novomatic, owned by the family of its billionaire founder Johann Graf, has been on a shopping spree in recent years. The Ainsworth purchase gave it access to the important U.S. market last year, where it is targeting a market share in slot machines of more than 10 percent.

Novomatic generates around 40 percent of its sales from gambling equipment, the rest stemming from operating gambling halls. Online activities only account for a small percentage of sales as internet gambling is illegal in many countries, and Novomatic does not circumvent such rules by launching websites in Russia or China.

Novomatic reported a 29 percent drop in first-half net profit on Aug. 30, citing tax hikes in Italy and Austria and preparations for regulatory changes in Germany.

Peers such as Aristocrat ALL.AX, IGT IGT.N and Scientific Games SGMS.O specializing in gambling equipment trade at 7-14 times their expected core earnings.

Novomatic was not expected to reach a valuation of 10 or more times its expected core earnings, one of the people close to the matter said.

Last year, Novomatic posted earnings before interest, tax, depreciation and amortization of 589 million euros.

Novomatic has said that while it expects the number of gambling machines to drop by 25-30 percent in Germany in coming years due to the new rules, it expects usage rates to rise.

Additional reporting by Dasha Afanasieva; Editing by Georgina Prodhan and Louise Heavens/Mark Heinrich