Headline figures for betting exchange operator Betfair (BET) were distorted by impairment and restructuring costs but, even after adding these back, underlying pre-tax profits were still down 27 per cent to £38m. Part of this reflected regulatory developments that prompted the group to cease operations in Greece, Germany and Cyprus together with a partial exit from Spain. However, a new management team, projected annual cost savings of £30m, entry into new markets and growth in newly launched products are expected to significantly boost profits this year. In fact, analysts at broker Peel Hunt expect adjusted pre-tax profits to rise to £51.9m to produce EPS of 41.4p (from 31.2p in 2013).
Revenues held up pretty well last year, helped by the launch of Sportsbook in February, a system designed to attract gamblers in the recreational segment of the market. Unlike Betfair's core betting exchange, where bets placed are offset against counterparties with an opposing view and where the company earns a commission, Sportsbook acts as a principal in each transaction. So the potential rewards are much greater, but so are the risks of losing. Betfair has built in bigger margins and other techniques to minimise risk.
Moreover, management has moved to improve the quality of earnings by reducing its presence in countries with insufficient regulatory visibility. While this will hold back growth in the short term, it will improve earnings quality over the longer term.
| BETFAIR (BET) | ||||
|---|---|---|---|---|
| ORD PRICE: | 822p | MARKET VALUE: | £858m | |
| TOUCH: | 821-824p | 12-MONTH HIGH: | 931p | LOW: 644p |
| DIVIDEND YIELD: | 1.6% | PE RATIO: | na | |
| NET ASSET VALUE: | 126p* | NET CASH: | £168m | |
| Year to 30 Apr | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 341 | 17.8 | 14.4 | nil |
| 2011 | 393 | 26.6 | 22.6 | 5.9 |
| 2012 | 389 | 54.2 | 45.4 | 10.2 |
| 2013 | 387 | -49.4 | -44.4 | 13.0 |
| % change | - | - | - | +27 |
Ex-div: 4 Sep Payment: 2 Oct *Includes intangible assets of £54.6m, or 52p a share | ||||
