■ Good sports results
■ Impressive mobile betting growth
■ Sportingbet bid ruled out
Fortune continues to favour Irish bookmaker
The structural shift in the market towards betting on mobile phones is proving especially significant for the company. Mobile revenues as a percentage of Paddy's online sales rose ahead of the trend in October to 45 per cent, compared with 41 per cent in June. Meanwhile, Paddy Power's network of shops performed roughly in-line with the market, with like-for-like sales growth of 5 per cent. The only downside was a surprising slide in machine gaming revenue which fell 4 per cent on a like-for-like basis - in contrast, rivals have seen strong machine gaming growth.
Investors will also take comfort from Paddy's chunky cash pile of approximately €169m (£136m), which now looks secure after management ruled out a bid for
Buy. Overall, group net revenue growth was broadly in line with expectations with a strong performance in Australia offsetting a slightly disappointing performance in the European business. Based on our 2012 forecasts - of pre-tax profit of €136.9m and EPS of 242¢ - the shares trade on 22 time expected earnings. This is a substantial premium to its peers, reflecting the fact that almost 70 per cent of cash profits will come from the fast-growing online operations. Nevertheless, we think this premium is justified by continued strong momentum and reiterate our buy recommendation. Our discounted cashflow valuation yields a €64 price target.
Davy Stockbrokers says...
Outperform. The UK over-the-counter performance was strong, although machine gaming fell below expectations as competitors closed the gap in terms of their the product offering. The group is currently launching a loyalty programme in its UK shops and it will be interesting to see what impact this has, both in terms of revenue growth and free bet proliferation, over the coming months. Forty five shops will now be opened in the UK this year versus previous guidance of 40. Management remains comfortable with market expectations for this year and we do not envisage material changes to our earnings growth estimate of 18 per cent for 2012, which equates to EPS of 251.6¢.
Paddy Power is undoubtedly a high quality player. But a prospective dividend yield that's not far above 2 per cent is nothing to get excited about while the shares - at 5,372¢ - trade on a hefty 22 times forecast earnings. Any hiccups and that precarious rating could easily slip. Sell.
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