PPB takes Trump thump on the chin

PPB takes Trump thump on the chin

Monday, January 23, 2017 Posted by Sam Cooke
Adverse results hurt the bottom line at Paddy Power Betfair

The adverse sporting results experienced by the bookmakers at the tail end of last year put a dent in Paddy Power Betfair’s profit margins for the year but did nothing to stop revenue growth at the gambling giant.

The company said the run of bad luck began with the election of Donald Trump as US president, which cost the company £5m, and continued with the customer-friendly results in the English Premier League in December. The timing of the football results meant there was very little chance for the company to benefit from recycling before the financial year end.

All told the company said the results cost it £40m, though the impact on profits was mitigated by slightly lower marketing costs than previously forecast and by lower staffing costs.

It was in its online operation where the company suffered the most with revenues for the quarter down by 3 percent year-on-year or 8 percent in constant currency terms. The company blamed the adverse sports results as well as what it termed a “weakness in gaming”. This was despite a 15 percent rise on sportsbook stakes.

The company highlighted the benefits of diversification with the Australian business managing to help make up the online shortfall elsewhere with an 18 percent rise in revenues off the back of a 25 percent rise in stakes.

Analysts at Numis pointed out that the scale of the sports-results revenue hit was double the figure cited by William Hill (£20m) and even more so that of Ladbrokes Coral (£15m), and this despite the mitigating factor of having the benefit of the supposedly ‘risk-free’ exchange.

“However, it is encouraging that this was wholly mitigated through lower costs including staff and marketing savings,” Richard Stuber from Numis added in a note to clients.

Over at Regulus Partners, Paul Leyland said that the pattern of Paddy Power Betfair’s strengths (sports-betting) and weaknesses (gaming) were no surprise given the pedigree of the two European-facing brands. But in order for the combined entity to “justify its online (gambling) leadership positon”, Leyland suggested the company will need to demonstrate it can grow the sports-betting sector – as both have done previously – rather than simply tracking market growth.

“A key strategic question for the group is to decide whether it can maintain momentum in the longer term with nearly all its focus on betting, given that gaming is a bigger sector in nearly all regulated markets, albeit with USPs and material market share much harder to develop and maintain,” he said.

“Paddy Power Betfair is the combination of two former disruptors, still learning - and often struggling - to become leaders. The combination is an extremely powerful one, but it also sets the bar very high in terms of delivering sustainable growth.”

Totally Gaming says: There were no surprises in the trading statement from Paddy Power Betfair. We had been forewarned by the competition that sporting results had gone against the bookmakers – “the worst December in living memory” according to Sky Betting & Gaming’s hyperbolic phrase – and the well-advertised hit on the election of President Trump is in reality a piece of PR worthy of the perma-tanned Oompa-Loompa himself. Still, as with the rest of the sector, the challenges ahead in 2017 are formidable and it will test Paddy Power Betfair’s mettle as much as that of the chasing pack.

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