Paddy Power Betfair shares worth £100 

paddy power betfair

Donald Trump’s surprise presidential election victory cost Paddy Power Betfair (PPB) £5 million in the fourth quarter of 2016, with customer-friendly sports results burning a £40 million-shaped hole in the bookmaker’s pocket.

Fast-approaching the first anniversary of the merger of Paddy Power and Betfair, momentum has clearly been lost, and the share price is down almost 4% Monday. However, full-year results on 7 March are still expected to shine, and one City analyst is betting the shares are worth £100, implying 20% upside from here.

Paddy Power lost big on football results in December, and it was among the hardest hit by a year of surprises. But there should be some benefit from customers recycling their winnings.

Although online sportsbook stakes jumped 10% at constant currency, a weaker gaming performance and those unlucky results wiped 8% off revenue at the online business in the fourth quarter. Revenue had surged 20% in the first nine months of the year.

The gaming business lost some of its momentum, with revenue up 3% at constant currency to £89 million, compared to an annual sales increase of 12% to £353 million.

At least geographical diversification is paying off: a 25% increase in local currency Australian stakes in the quarter underpinned an 18% rise in revenue from the region, partially offsetting poor gross win margins in Europe. As nearly a fifth of revenue comes from Australia, group sales rose 10% to £388 million in the final three months of the year – flat without including the benefit of the weak pound.

Annual performance is strong, too. Group revenue jumped 18% to £1.55 billion for the year – up 11% at constant currency – and underlying operating profit will come in at the middle of its previously guided range of £390-£405 million, helped by lower-than-expected marketing and staff costs.

Since the February 2016 tie-up, the combined group has prioritised four main channels: online, Australia, US and retail. Although the UK and Ireland generates 19% of revenue and the US 6%, we’re not told any more about how the divisions are performing.

Management has also kept schtum on its outlook ahead of full-year results. Numis analyst Richard Stuber expects revenue to be a fifth higher at £1.58 billion, with a 42% increase in pre-tax profit to £322 million giving earnings per share (EPS) of 325p.

“Unlike Ladbrokes Coral or William Hill, Paddy Power Betfair’s exposure to UK retail is limited (c.10%, of which gaming machines c.6%). Near-term we expect solid trading (gross win margins normalising) and continued EBITDA progression (operating leverage),” explains Stuber.

Revenue should jump by a further 12% to £1.73 billion in 2017, predicts the analyst, with operating leverage supporting a 20% jump in cash profit to £479 million – 1% ahead of City forecasts – and pre-tax profit of £396 million. Expect EPS of 395p.

In the red Monday morning, Paddy Power Betfair shares were struggling in a weak market, testing technical support. They currently trade on 21 times forward earnings, but Stuber rates them an ‘add’ and thinks they could be worth a tonne each – £100.

Source: interactive investors – Paddy Power Betfair shares worth £100

One Response to Paddy Power Betfair shares worth £100

  1. Lensastreaming

    Excellent article. I will be dealing with some of
    these issues as well..

     

Leave a Comment


Broker Cyprus TopFX