A glut of horse-racing cancellations in the U.K. and Ireland and too many winning favorites in Australia made it a grim first quarter for
Paddy Power Betfair Plc.
Shares in the betting giant fell as much as 7.9 percent on Wednesday, the most since August, after the company reported a drop in underlying earnings for the quarter and issued a full-year forecast that reflected its tough start to the year.
Small consolation came in the form of a 500 million-pound ($682 million) return of cash to shareholders and a resumption of growth in online gaming revenue since the start of February.
Here’s what analysts are saying:
DAVY (David Jennings)
- 1Q revenue of GBP408m was 5% below Davy’s estimate of GBP429m and flat year-on-year on a constant currency basis
- Main factors contributing to the lack of growth were a 7% decline in exchange revenue, lower-than-expected net revenue margins in Australia and weather-related cancellations
- 14% of U.K. and Irish horse races were canceled in 1Q18 versus 4% in 1Q17
- Main crumb of comfort is that gaming performance since the beginning of February has improved somewhat, with run-rate +4% in February/March
- Expects to revise FY18 underlying Ebitda estimate to the lower end of co.’s guidance
- Overall, says update re-emphasizes that returning the group to double-digit growth is going to take time
- Retains neutral recommendation
SHORE CAPITAL (Greg Johnson)
- 1Q outcome was disappointing
- Co. expected to face GBP43m of headwinds in the current year, though this could be as high as GBP130m if GPT is rolled out across Australia at 15% and a GBP2 stake limit is introduced in the U.K.
- Group unlikely to offset such potential risk through organic growth
- Cuts recommendation to sell from hold
GOODBODY (Gavin Kelleher)
- Bad weather, reduced customer recycling of winnings and adverse Australian sporting results led to a “soft” 1Q
- Performance will come as a surprise, but should be viewed in the context of a number of one-off factors (weather, Australian sports results)
- Plan to cut FY18 Ebitda estimate by 1%-2% from GBP494m, bringing it into line with mid-point of management’s guidance range
- Guidance range and announcement of a GBP500m buyback “should offer some comfort”
- Reiterates buy recommendation