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Paddy Power Betfair looks to maintain growth

The bookie's incoming CEO needs to supplement its strong UK and Australia sports betting operations
August 8, 2017

Paddy Power Betfair's (PPB) drive to become the industry leader in regulated gambling markets could soon begin to act as a drag on earnings growth. That's the take of Numis analyst Richard Stuber. Continuing to expand in Australia and the UK, where it has a leading market share in online gambling, could become increasingly difficult – and the bookie will face the challenge without CEO Breon Corcoran, who is leaving after 16 years with the group's constituent companies. He will be replaced by Peter Jackson, currently the UK CEO at Worldpay (WPG). 

IC TIP: Hold at 7160p

The news was released a day before these half-year results, which revealed the combined group's total revenue was up 3 per cent on last year's pro-forma first half. A good first quarter helped by favourable horse racing results at Cheltenham was counterbalanced by a tough second quarter without a major football tournament to match the impact of Euro 2016 last year. Elsewhere, retail shops across the UK and Ireland saw like-for-like sales growth of 3 per cent, and an increase in the estate from 603 to 620.

One solution to Mr Jackson's growth challenge is to expand in other markets through acquisitions, such as the purchase of US fantasy sports website Draft earlier this year. Analysts have also pointed to Italy and Spain as prime targets for expansion. Another option would be to give the group's gaming segment a makeover, or bolster it via acquisition. Management has expressed concerns that its brands are too closely associated with sports betting. 

Integrating its technology platform was a focus in the reported period. This should allow the group to quickly roll out new products and move into new markets more easily. Integration work has used up around 70 per cent of the European technology budget, so it has come at the expense of new online products, with fewer updates and new features on the European sportsbooks. But benefits are coming through, say the group: a faster sports app for Paddy Power customers, once migrated, while Betfair customers should already be getting improved pricing via Paddy Power’s proprietary risk and trading models.

Analysts at Numis expect pre-tax profit of £371m in the year to December, giving an EPS of 374p, compared with £327m and 331p in 2016. 

PADDY POWER BETFAIR (PPB)  
ORD PRICE:7,160pMARKET VALUE:£6.04bn
TOUCH:7,160-7,170p12-MONTH HIGH:10,020pLOW: 7,110p
DIVIDEND YIELD:2.5%PE RATIO:44
NET ASSET VALUE:5,106p*NET CASH:£87m
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2016**709-45.9-67.752.0
201782710210365.0
% change+17--+25
Ex-div:24 Aug   
Payment:22 Sep   
*Includes £4.41bn of intangible assets, or 5,225p a share **DPS includes 12p paid on merger completion