Paddy Power Betfair in fresh stumble

Paddy Power Betfair shares have stumbled again, despite a World Cup boost and more clarity on regulatory issues. Graeme Evans looks at today's results.

In contrast to new Ladbrokes owner GVC Holdings, the share prices of rival bookmakers Paddy Power Betfair and William Hill have been lagging a few furlongs back.

Dublin-based Paddy Power widened the gulf further today by scaling back guidance for full-year earnings, even though trading in the second quarter was much improved following a boost from a successful World Cup.

Shares fell 5% to 7720p and are now back where they stood in May, having rallied as high as 9000p during that month following the announcement of a £500 million share buy-back.

While today's results may have disappointed investors, there is at least some encouragement that the regulatory fog impacting Paddy Power and the rest of the industry is starting to clear.

As chief executive Peter Jackson said:

"We now have much better visibility of the regulatory and fiscal changes in the UK, Australia and the USA."

Further clarity came from Paddy Power on its exposure to fixed odds betting terminals in the UK following the Government’s proposed £2 stake limit.

It estimates that the direct impact will be a 33% to 43% decrease in total machine gaming revenue, which based on 2017 revenues would be £35 million to £46 million or less than 2.6% of group revenues. This is before potential mitigation factors such as substitution to other betting products.

Paddy Power now wants a timeline for the stake cut to be announced as soon as possible so the sector gets  the "certainty it needs to move on from this decision".

The company was also able to update its guidance on Australia, where various state governments have announced plans for point of consumption taxes. The impact on its Sportsbet division is an additional tax at a blended rate of around 11% of gross revenues, equating to about A$95 million (£54 million) a year.  

A more positive development concerns the United States after the Supreme Court recently gave states the go-ahead to legalise betting on sports.

The group has already completed a deal to combine its US assets with FanDuel, a leading daily fantasy sports operator, in a bid to strengthen its position in the US sports betting market. Paddy Power owns 61% of the combined business.

In the meantime, however, the inclusion of losses from the FanDuel business and the introduction of the additional taxes in Australia will result in underlying earnings for 2018 being between £460 million and £480 million. The previous guidance had been for a range of £470 million and £495 million.

The downgrade comes despite 13% growth in second quarter revenues, with the figure up 9% in the period prior to the start of the World Cup. As part of its drive to stem the loss of market share for its Paddy Power business, the company bought prime TV advertising slots to promote the brand during the tournament.

It said it returned £201 million to shareholders via dividends and share buybacks in the first half, while today's interim dividend was lifted 3% to 67p. According to UBS, the betting company has a 2.4% dividend yield.

Despite the stronger growth in the second quarter, UBS analysts have retained their "Sell" recommendation with a price target of 7130p.