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TIP UPDATE: Paddy Power is making profits form its market-leading online business - but higher costs and moderating growth leave the shares looking too demandingly rated
August 28, 2013

Half-year figures from Irish bookmaker Paddy Power (PAP) were affected by currency headwinds at the group's large Australian business, €6.9m (£6m) of start-up costs in Italy, and a higher proportion of horse race favourites having come in as winners. Overall, half-year operating profit rose by a weaker than expected 11 per cent year on year to €75.4m.

IC TIP: Sell at 5,975€

Establishing the Italian business meant that online costs grew 33 per cent in the period to €145m, compared with a 29 per cent rise in online revenue to €243m. Still, the online side also saw operating profit rise 17 per cent to €57.5m and the unit now generates around three-quarters of Paddy Power's total profits. The retail over-the-counter division, meanwhile, saw a mixed half with the new machine gaming tax having helped to keep UK retail profit largely flat at €7.8m amidst competitive conditions - that off-set like-for-like sales growth here of 3 per cent. The Irish retail business was hit hardest by poor sports results, particularly at the Cheltenham Festival - operating profit there slid 16 per cent to €7.6m, although the bookie did manage its first improvement in stake size since 2007.

Broker Numis Securities expects full-year pre-tax profit of €156m, giving EPS of 282¢ (from €139m and 251¢ in 2012).

PADDY POWER (PAP)

ORD PRICE:5,975¢MARKET VALUE:€2.93bn
TOUCH:5,969-5,990¢12-MONTH HIGH:7,133¢LOW: 5,001¢
DIVIDEND YIELD:2.7%PE RATIO:18
NET ASSET VALUE:589¢*NET CASH:€214m

Half-year to 30 JunTurnover (€m)Pre-tax profit (€m)Earnings per share (¢)Dividend per share (¢)
201231168.712439.0
201338077.013945.0
% change+22+12+12+15

Ex-div: 4 Sep

Payment: 27 Sep

*Includes intangible assets of €157m, or 319¢ a share

£1=€1.16