Betfair by Paddy Power Lacks Power?
Following a string of convoluted changes, PPB seemed confident once more in April, but now the London Stock Exchange is witnessing the worst dip in the Irish bookmaker's share price in years—a direct result of the PPB Q1 results presentation. What could be causing this regression?
Pessimism towards the Dublin-based bookmaker is spreading not just on the London Stock Exchange (LSE), but also on the UK market and beyond. In just a few days, PPB lost about 7% of its market value (02.05), causing its shares to plummet to approximately €77.50, the lowest they've been since 2016's merger between Paddy Power and Betfair, even though they've opened five new locations in the UK and Ireland in the last three months.
Shortly after the merger, PPB shares were valued at around €140. Compared to this, they've dropped over 40%. The reason given for this decline is "increased tax expenditure with sluggish performance." PPB's Q1 business results, revealed right beforehand, triggered this downward turn.
PPB's online sales plummeted to £219 million in the first quarter of 2018, a 2% dip from the previous year. Total sales dropped by 2% to £408 million. Furthermore, EBITDA — an economic indicator of gross profit — fell by 6% to £102 million, and the Q1 operating result incurred an overall loss of 12% compared to the previous year. The gaming revenue from the Paddy Power brand alone plummeted by a striking 4%.
The Cause at a Glance
These issues are attributed to a range of "one-off factors" that don't show up in share indexes.
At the end of last year, PPB saw record-breaking growth of over 18%. So, while the Q1 results may seem surprising, they must be understood in the context of these temporary factors. A closer look reveals the following:
From November to February, the number of horse bets that were canceled increased, as races were called off due to bad weather. Horse racing accounts for 45-50% of PPB's turnover. Also, two executives had to be replaced—a new CEO and CFO—following their unexpected resignations at the beginning of the year.
Meanwhile, some investors think the company's expansion plans are risky. The Australian 15% gambling tax is seen as a potential loss, while the US market, where only four states currently allow sports betting, is viewed as questionable.
Most recently, the £2 limit on the controversial FOBT (fixed-odds betting terminals) machines hit PPB's business hard. These Virtual Roulette slots have been installed in over 600 branches, and in the past, their maximum stake was £100.
Sticking With It
Despite the disappointing Q1 results, PPB has announced additional share buybacks over the next 12 to 18 months, which would return £500 million to investors. Moreover, PPB CEO Peter Jackson emphasizes the need to focus on long-term goals:
"Though our performance in the first quarter was lackluster, we've made solid progress on the primary strategic objectives we set in March," says Jackson, who took office in January, in a defiant tone. Despite the dismal numbers, Jackson sees "reasons for optimism." Hence, he's forecasting a result "between a minor decline and 5% growth" for the entire year.
Jackson refers to the plans announced in March to elevate marketing expenses by a total of £20 million in 2018, with £10 million allocated to the Australian market, where PPB operates through the Sportsbet brand. Work is also underway on a new technology platform that will significantly enhance the Paddy Power product, according to the statement.
In response to the current situation on the LSE, the PPB management asserts that while aggressive investment is a good move, it may cause temporary profit losses.
Ireland's largest stockbroker, Davy Stockbrokers, has given its positive assessment in light of these events: "A return to double-digit growth will take time, but the next quarter should fare better." Additionally, the analysts highlight the World Cup as an opportunity for customer interaction and product innovation.
Sources
- http://www.onlinecasinosdeutschland.com/news/paddy-power-betfair-gibt-neuen-cfo-bekannt.html
Despite being one of the largest gaming providers in the UK, PPB has recently experienced a downward trend in shares. However, this company remains significant in the European gaming industry. In 2016 and 2017, EGR's "Power 50" ranking placed PPB as the second most potent online gaming operator in the UK. We'll need to wait and see if the current negative sentiment towards the brand is warranted.
Read also:
- What's making the Bayern leader appear so anxious?
- Most supporters desire Neuhaus to remain with the team.
- The referee for the upcoming cup final has been declared.
- Wohlgemuth announces two new names.
Source: www.onlinecasinosdeutschland.com
