Deutsche Bank upgrades Betfair to 'buy' on compelling momentum

Deutsche Bank upgraded Betfair to ‘buy’ from ‘hold’ and lifted the price target to 4,200p from 2,650p.

The bank said it reckons Betfair can grow revenues/profits materially above the market growth rate following the group’s relentless focus on product innovation coupled with brand investment over the past 24 months.

In addition, DB sees upside risks to forecasts and said the upcoming merger with Paddy Power offers the ability to leverage higher returns on incremental investment given the material increase in scale.

The bank estimates that in year two of the merger the combined group would be trading on a 16x EV/EBITDA multiple or 23x earnings.

“We see these valuation metrics as attractive in light of the combined group’s greater scale and ability to leverage higher returns on product and marketing investment.”

Deutsche lifted its full year 2016 EBITDA forecast by 19% to £136m and its earnings per share estimate by 23% to 96p based on strong core Betfair revenue growth.

For full year 2017, it raised its EPS estimate by 22% to 116p and assumes EBITDA growth of 18% to £161m.

At 1020 GMT, Betfair shares were up 1.5% to 3,655p.