Paddy Power Betfair speeds to interim gallop after slow start

Revenue of £759m in the six months to 30 June rose 18% on a pro forma basis compared to the equivalent period last year, as a relatively soft first quarter hit by unfriendly sporting results saw a boost from the Euro 2016 football tournament lift sales 20% in the second.

While retail revenue was up 12% to £147m, online revenue rose 20% to £440m, while takings from Australia jumped 17% to £129m and from the US by 16% to £43m.

The board declared an interim dividend of 40p as, even though marketing spending was lifted by almost a third, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 31% to £181m, ahead of consensus of £176m. Underlying earnings per share were up 36% to 147p.

Chief executive Breon Corcoran said the integration post-merger was ahead of schedule with restructuring largely complete, while the company was able to sustain good trading momentum through a period of considerable change.

He now expects £65m per year of cost synergies, up from prior expectations of £50m, to be achieved in 2017, which is a year earlier than original expectations with circa a £30m benefit in 2016 as £9m has already been achieved in the first half.

"We are creating a world-class operation by exploiting the unique assets and capabilities of each legacy business, particularly in the key functions of technology, marketing and trading," he said.

The second half of the year has started in line with management expectations and for the full year, Corcoran expects proforma underlying EBITDA to be between £365m and £385m.

He added: "While our industry remains highly competitive and is exposed to the prevailing economic and regulatory environments, our strong market positions, increased scale and enhanced capabilities position us well for sustainable, profitable growth".

Analysts at Shore Capital said the results looked strong it was likely to increase its forecasts towards the top end of the guidance range, which implied earnings of 312p per share.

"Paddy Power Betfair is a truly world class operator and combining the two group’s with its enhanced scale and capabilities should allow them to deliver growth consistent ahead of the wider market for a sustained period," ShoreCap said, but saying at the current price most of this was effectively "already in the shop window".

"Our long-term cash flow analysis suggest that the current price is implying EBITDA builds to beyond £1bn, which is sharply ahead of the £365m-£385m forecast for the current year, which is unlikely to be delivered in its current core markets and hence requires new territories to open up."

Credit Suisse was less effusive, continuing to see post-merger share price reaction as looking "overdone", targeting a price of 8,650p.

Despite forecasting 2.4 percentage points (ppt) of UK market share gain over the next five years, a discounted cash flow analysis by the Swiss bank's analysts has indicated downside potential to the share price, even before accounting for merger integration risks and potential regulatory headwinds.

Shares in PPB rose to around a five-month high early on Wednesday before falling 2.5% to 9,698.89p by 1230 BST.