Trump win truncates profits at Paddy Power Betfair

Paddy Power Betfair said it would not hit its top-end targets after Donald Trump's unexpected US election win and several other punter-friendly sporting results at the end of the year cost the bookmaker around £40m.

This was more than analysts were expecting, as rivals William Hill and Ladbrokes reported roughly £20m and £15m impact respectively, while the Betfair betting exchange is trumpeted as reducing risk.

However, the FTSE 100 group said it still expected to make underlying earnings before interest, tax, depreciation and amortisation around the mid-point of its November guidance of £390-405m thanks to lower staff costs and marketing savings in the fourth quarter.

With revenue coming in at £388m in the fourth quarter, the total for calendar 2016 of £1.55bn was up 18% on the previous year, or up 11% at constant currency rates.

Since the third quarter update in November, the group, which was formed through a merger last year, said it saw good sportsbook staking growth despite the results favouring punters.

"This started with the unexpected US election outcome, which cost the group almost £5m, and concluded with our European sportsbooks losing money on football bets in the month of December," the bookie said.

Online revenue fell 3% in the fourth quarter compared to the same period the prior year, down 8% in constant currencies, despite 15% growth in sportsbook stakes.

Sportsbet in Australia enjoyed 25% growth in betting stakes in the quarter that led to revenue growth of 18% in local currency rates, which helped to partially offset the poor gross win margins in the European businesses.

Broker Shore Capital said that, overall, the statement is broadly in line with its expectations.

"However, the slowdown in sportsbook staked and gaming revenue in the quarter, somewhat masked by Australia and cost savings, may disappoint, especially given the rating," said analyst Greg Johnson.

He expected to downgrade his 2016 PBT estimate by circa £10m to £326m for EPS of 326p post the update, and maybe need to reflect more modest growth assumptions in 2017 than his current forecast for EBITDA of £480m and EPS of 407p.

Numis analysts did not expect any change to consensus forecasts as a result of the announcement.

Unlike Ladbrokes Coral or William Hill, Numis noted that PPB's exposure to UK retail is limited - roughly 10%, of which gaming
machines is circa 6%.

"Near term we expect solid trading (gross win margins normalising) and continued EBITDA progression (operating leverage)."

Shares in PPB were down by just over 2% to 8,492.5p after two hours' trading on Monday.