What's new
• Integration of sportsbook and exchange completed
• Third quarter revenue has risen 5 per cent
• Heavy marketing spend ahead
The gambling sector certainly faces challenges. While there are growth opportunities from online and mobile operations, as well as from the US market, the prospect of a tougher UK tax regime is growing. Indeed, the new Point of Consumption tax (due for implementation in December) will mean a hefty 15 per cent duty for online gambling operators.
Right now, however, betting exchange group Betfair looks well placed. It plans to double its current share of television coverage in 2014, after having signed a deal with ITV relating to football coverage for the next 15 months - that includes the World Cup and Champions League. The two new contracts add to its current partnerships with Sky Sports and its recent return to Channel 4 Racing. That should help Betfair to consolidate a strong third-quarter performance that saw revenue grew 5 per cent in the three months to end-January, with mobile revenues up 68 per cent. That was significantly helped by a strong US performance, where sales rose 24 per cent.
The group has also now completed the merger of its exchange platform and its traditional sportsbook. Analysts believe that integration here should boost both products and drive superior odds for sportsbook customers on highly liquid markets.
Investec Securities says…
Sell. The advantages of integrating the exchange and the sportsbook have yet to flow through and we are intrigued as to how customer activity and revenue flows will shape up after the integration. The group plans to market aggressively in 2014, but the additional marketing costs appear to have negated any consensus upgrades, with company cash profit guidance remaining in the £82m-87m range. Given the premium valuation, as well as the risks associated with increased investment in both product and marketing initiatives, we retain our sell advice - with a 950p price target. Expect full-year EPS of 44.4p.
Numis Securities says…
Add. Betfair is nicely on track. The third-quarter results were in line and management expects full-year profit to come in at the upper end of the range. The core business is growing, too, and investment in product and marketing is accelerating. Moreover, the recent integration of the sportsbook and the exchange creates a new point of differentiation which is likely to appeal to customers. But the share price has performed strongly in anticipation of the now confirmed improvements to the business. We therefore downgrade from buy to add but retain our 1,300p price target.
