Investors are not impressed with bookie Paddy Power Betfair (PPB) following a profit warning for 2018, overshadowing its plan to return £500m to shareholders over the next year and a half.
Shares in the company declined 6.6% to £67.75.
Earnings before interest, tax, depreciation and amortisation (EBITDA) for 2018 are anticipated to fall to between £470m and £495m, missing analysts’ forecasts of £500m as the company invests more in Australia.
Potential risks to achieving this guidance include the potential introduction of new taxes in Australia and if further investment is needed to address regulatory changes in the US.
Paddy Power Betfair has also not had a good start to 2018.
Underlying EBITDA fell 6% to £102m in the first quarter of 2018 on the annualisation of new betting taxes and start-up losses in its US business.
‘Bookmaker friendly’ sports results from November to February and high levels of horseracing fixture cancellations amid bad weather dragged on UK customer activity, leading to a 2% drop in sales at £408m.
Growth in Betfair also failed to offset weakness in the Paddy Power brand as gaming revenue fell 4%.
This is expected to improve following the migration of Paddy Power customers to an integrated tech platform in January, helping gaming sales return to growth under the brand.
In February and March, overall gaming sales increased 4% year-on-year.
‘HEADWINDS COULD HIT £130m’
Shore Capital’s Greg Johnson says Paddy Power Betfair is expected to face £43m in headwinds this year.
The analyst argues this could rise to as high as £130m if gross profits tax is introduced in Australia at 15% and a £2 stake limit on fixed odds betting terminals is enforced in the UK.
Johnson is not confident the company can offset these risks as it is continues to lose traction in the UK and has limited international exposure outside of Australia.
