Betfair's maiden interim results threw off a number of conflicting signals, including an initial reaction that saw the shares dip nearly 10 per cent to 1,065p. While turnover rose strongly, most of this came in the first quarter, while growth in the second quarter was just 1.6 per cent. And trading at the start of the third quarter was affected by the weather related cancellation of a number of sporting fixtures and also a continued migration of poker business to the Ongame network.
The underlying picture looks solid enough though. Betfair provides a betting exchange whereby customers come together to bet at odds set by themselves and offered to other customers. And active customer numbers rose 31.1 per cent to 654,000, underpinned by betting relating to the football World Cup, and a 70 per cent increase in business transacted through mobile channels such as iPad and iPhone.
Of the operating units, the core Betfair platform provided a lion's share of the revenue, and turnover here rose by 11.3 per cent to £167.2m, and cash profits rose 25.7 per cent to £35.5m. Turnover in other investments, which includes Betfair US, rose by 19.9 per cent to £21.4m, although trading losses widened from £3.1m to £4.3m. But the outlook here is encouraging because legislation has been passed in California that will allow exchange betting on horse racing from May 2012, with similar legislation being considered in New Jersey. A high roller trial service offered to a select number of customers attracted revenue of £24.7m, but after the first quarter the trial was terminated.
Investec is forecasting full-year normalised pre-tax profits of £24.3m and EPS of 28.2p (2010: £21.9m/24.3p).
|ORD PRICE:||1,065p||MARKET VALUE:||£1.1bn|
|TOUCH:||1060-1066p||12-MONTH HIGH:||1,610p||LOW: 1,040p|
|DIVIDEND YIELD:||-||PE RATIO:||80|
|NET ASSET VALUE:||190p*||NET CASH:||£178m**|
|Half-year to 31 Oct||Turnover (£m)||Pretax profit (£m)||Earnings per share (p)||Dividend per share (p)|
*Includes intangible assets of £101m, or 94p a share **Not including £288m of client funds held in trust
Betfair has shown some pretty impressive rates of growth, but the worry is that the pace of expansion trailed off significantly in the second quarter. Headline profits should be maintained, given the reduction in marketing spend, and while the regulatory news from the US is encouraging, changes to the rules in some European countries next year could prove to be negative for Betfair. Trading on 38 times Investec's forecast EPS, the shares look expensive. High enough.