Strong US and online performance is behind gambling firm Paddy Power Betfair’s (PPB) slight upgrade to full year profits guidance on Friday (2 November). While the top end of the range stays at £480m, the lower end estimate has been nudged up from £460m to £465m.
Online is ‘clearly the most positive feature’ in the third quarter results, according to Davy Research analyst Michael Mitchell, where sales rose 15% to £248m.
In a mature UK market squeezed by intense competition on the one hand, increasingly draining regulations on the other, investors will be pleased by emerging benefits elsewhere.
Buying fantasy sports gaming operator FanDuel looks a smart move. It already has a market share of more than 40% of the daily fantasy sports market in the US, and today we find out that FanDuel revenues shot up 22% in the three months to 30 September.
Bear in mind that this is still a loss-maker for Paddy Power, and further investment is still acting as a drag on overall profits, with reported earnings before interest, tax, depreciation and amortisation (EBITDA) declining 16% to £101m on a year-on-year basis.
REGULATION HEADWINDS REMAIN
This perhaps underlines why shares in the bookie barely budged today, inching just 1% higher to £69.80, a rise roughly in line with the FTSE 100 today.
The other elephant in the room is stringent regulation in the UK, Ireland and Australia, particularly around the controversial FOBTs, or fixed-odds betting terminal, where maximum stake caps to £2 are due next year in the UK (even after the criticised delays by government).
There is also rising remote gaming tax limits to balance.
Which suggests that investors are probably simply relieved that there are no other nasties following Paddy Power's profit warning in May, and the Irish government’s recent decision to double national gambling turnover tax from 1% to 2% on sports books.
Trading in the UK remained weak as sales fell 4% to £82m amid a 6% decline in sports revenues.
HIKED INVESTMENT IN AUSTRALIA
AJ Bell investment director Russ Mould says Paddy Power is confident of gaining market share in Australia despite a 2% fall in sales as customers had the winning hand over the last quarter.
The company hopes investing in Australia, particularly in promotions, will lure in more customers. Yet rival William Hill (WMH) has already thrown in the towel down under because of the crippling regulatory environment. Something for investors to watch down the line.
