Broker tips: Paddy Power Betfair, Equiniti

Paddy Power Betfair lost ground on Friday as Investec downgraded its stance on the stock to 'sell' from 'buy' and cut the price target to 6,970p from 10,000p on the back of lower forecasts and a deteriorating regulatory outlook in the UK and Australia.

The brokerage said it was taking a closer look at the shares following a lacklustre performance over the past six months which saw the stock drop 10%, recently reaching an all-time post-merger low.

"We expect the market to be surprised by what we expect will be a disappointing Q217 and H117 (we forecast Q217/H117 growth of 4%/6.5% in revenue and -9.8%/22.1% in EBITDA)," it said.

In the long run, it argued that Paddy Power Betfair is well positioned given its exposure to online sports betting, listed market dominance in the UK and Australia, competitive advantages, operational gearing and a strong balance sheet.

However, in the shorter term, Investec sees downside with tough comps given the Euros, consensus still absorbing punter-friendly sports results and the Draft acquisition as well as a worsening regulatory outlook.

Analysts at Citi bumped up their target price for shares of Equiniti, hailing its acquisition of US-based Wells Fargo Share Registration & Services.

That, the broker said, would see the firm turn into an international player, instead of being just a UK-centric outfit.

It would also help Equiniti gain access to more customers and grow its market share.

"At its core, we still think Equiniti has an attractive, growing and cash-generative business model," Goldman said.

The broker estimated that Equiniti was capable of delivering an organic compound annual rate of growth in its earnings per share of 7% between 2017 and 2020.

Together with potenial uses of excess cash, EPS CAGR might reach double digits, Goldman explained.