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Paddy Power Betfair Shares Fall on Slower Growth

Shares of the FTSE 100-listed online gambling company Paddy Power Betfair extended losses today after the company revealed a leadership change

Karen Kwok 8 August, 2017 | 4:01PM
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The online gambling company Paddy Power Betfair (PPB) saw its shares fall 3.9% today, leading the FTSE 100 fallers, following the announcement of slower revenue growth.

Ahead of the company’s half year results today, the firm also revealed on Monday that chief executive Brenon Corcoran, who has spent 16 years with the firm, will step down. His position will be replaced by payments processor Worldpay’s UK chief executive Peter Jackson. The share price dropped 4.7% on the news.

Following the news of a leadership transition, shares of Paddy Power Betfair extended yesterday’s losses today as the group revealed a 9% revenue rise to £827 million in the first half of the year. This was a slower growth rate when compared to last July’s half year results which posted a 18% rise. The company reported that the growth was “partially offset by increased investment in pricing and promotions”.

Underlying revenues of the company were up 21% to £220 million. The company reported a pre-tax profit of £102.3 million for the six months to June 20, swinging from a £45.9 million loss the previous year.

“We continue to make substantial investments to position Paddy Power Betfair as a structural winner in a dynamic and highly competitive market. The integration of our technology platforms is on track for completion by the end of the year and will bring significant benefits including increased quantity and pace of new product development in 2018 and beyond,” said Corcoran.

Paddy Power Betfair is the world’s largest online betting company, following the £5 billion merger of Paddy Power and Betfair completed in February last year. The company generates most of its revenue from the United States and Ireland. Shares of Paddy Power Betfair fell 12% year to date.

UK Gaming Companies Face Regulatory Pressure

Online gaming companies in the UK are facing a regulatory investigation into potentially unfair practices, including misleading promotions and blocking players’ pay-outs.

The Competition and Markets Authority announced in October last year that it had started an investigation into whether gambling firms were treating their customers fairly. It is a joint programme of work between the CMA and the Gambling Commission to ensure more fair and transparent terms in the gambling industry. The investigation is still ongoing and the next update will be in December 2017.

The regulatory review has put pressures on the shares prices of major online gaming companies like Ladbrokes Coral Group (LCL), said Alex Wright, portfolio manager of Bronze Rated Fidelity Special Situations.

“Given that 70% of Ladbrokes Coral’s earnings coming from the retail side of the business, the expectation of a fall of retail business post regulatory review suggests that those 70% of earnings will be wiped off. Investors are fearful about this uncertainty, so they have backed off from the stock,” said Wright.

The regulator received complaints suggesting people were being lured into signing up for promotions with little chance of winning because of unfair and complex conditions.

“We’re worried players are losing out because gambling sites are making it too difficult for them to understand the terms on which they’re playing, and may not be giving them a fair deal. We are now investigating to see whether firms are breaking the law,” said Nisha Arora, senior director for consumer enforcement at the Competition and Markets Authority.

Sarah Harrison, chief executive with Gambling Commission, added that operators in the gambling industry are still not doing enough.

“I continue to have concerns that many of these appear to bamboozle rather than help the customer make informed choices,” said Harrison.

Ongoing Online Platform Integration

Ladbrokes Coral Group reported that the retail net revenue was 6% behind last year. However, digital net revenue has performed well, with net revenue growth of 17% against a backdrop of a significant period of platform integration and a competitive trading environment, said Jim Mullen, chief executive of Ladbrokes Coral Group.

“In UK retail, a key management focus has been on addressing some areas of ongoing inflationary pressure on the cost base and on improving gross win margins. Whilst these have had a negative impact on stakes, they have been profit positive and helped mitigate some of the impact of underlying run rates,” said Mullen.

Fidelity’s Wright also backs the growth of the company’s online presence in the market.

“Over the next couple years we see a little downside while there is significant upside on the other hand. As competition and capacity of the betting market being reduced in the next few years, there are more spaces for Ladbrokes Coral to grow, which we see as an opportunity,” said Wright.

Ladbrokes Coral Group share price has risen 12.9% year to date.

Another major online gaming company William Hill (WMH) also saw its profit fall in the first half of 2017 because of exceptional costs from implementing its transformation programme.

William Hill said net revenue in the 26 weeks to June 27 rose 2.8% to £837 million from £814.4 million.

However, reported pretax profit fell 7.1% to £93.5 million from £100.7 million as total exceptional charges of £20.5 million dragged down results. William Hill's share price has dropped 6.6% year to date.

William Hill said it gained market share in the UK, with online and retail "growing at or above market growth rates".

“We are seeing good momentum building in online performance. In retail we made market share gains, with growth in both sports betting, despite the lack of a major international football tournament, and gaming revenues,” said Philip Bowcock, chief executive at William Hill.

Online gambling has grown by around 146% since 2009, and now more than 5.5 million people regularly log on to sports betting, gaming and casinos using gambling websites, according to the CMA. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Fidelity Special Situations4,514.88 GBP1.41Rating
Flutter Entertainment PLC10,625.00 GBP0.00

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk