Paddy Power Betfair shareholders first past post with big dividend

Newly merged bookmaker Paddy Power Betfair said the new financial year has started in line with expectations as it reported a 35% rise in underlying earnings before interest, tax, depreciation and amortisation to £400m and a big dividend payout.

The company said group sportsbook stakes in the year to date were up 22%, with online up 13%, Australia 47% and retail up 15%.

Underlying revenues were up 18% to £1.5bn and the final dividend of 113p a share results in total dividends for the year of 165p a share.

Stautory pre-tax profits fell to £12 from £124m.

Revenue growth included a £78m benefit from the plunge in the pound. On a constant currency basis, revenue growth was 11%.

“Sports revenue growth was driven by a 24% increase in sportsbook stakes. During the year, sports results ebbed and flowed between favouring bookmakers and customers,” Paddy Power said.

“The first quarter saw a high number of favourites winning at the Cheltenham festival, before unfancied results at the Euro 2016 (football) tournament boosted revenues in June and July.”

“The year concluded with customer friendly football results in December. Across the year as a whole, the overall group sportsbook net revenue percentage was broadly in line with the prior year but was marginally lower than our normal expectations.”

The company said it expected to take a £6m annual hit from August when the UK treatment of free bets for online gaming point of consumption tax will change to bring it in line with their non-deductibility for sports.

It added that the UK government's decision to extend the Horserace Betting Levy to cover all operators payable at 10% of gross winnings from all customers in Great Britain betting would cost a net incremental £10m a year.

That news left the shares 5.46% lower at 1121 GMT.

Russ Mould investment director at AJ Bell, said the new taxes may have dampened enthusiasm, but a "more pressing issue for the shares may simply be their valuation".

“Paddy Power Betfair already trades at a big premium on earnings and a discount on yield compared to its FTSE 250 rivals Hills and Ladbrokes Coral, so the valuation may already largely reflect its superior recent history of earnings and dividend growth as well as its role as a key online disruptor of what is a highly competitive industry and lower risks, given its lower exposure to the UK High Street."

“For the shares to make further progress, Paddy Power Betfair will therefore need to offer proof of revenue as well as cost benefits from the merger, after a big marketing push in December and further technological development of its platform.

“Short-term sentiment may also be driven by results at next week’s Cheltenham Festival. Jump racing’s Olympics cleaned out the bookies’ satchels in 2016, as 11 of 28 favourites bolted up, although the early omens suggest that punters may find it tougher this time around.