Paddy Power shares slide on marketing spend

By Geoff Percival

Shares in Paddy Power-Betfair fell by 4% amid investor concern over the company’s performance in mainland Europe.

While the betting services group delivered strong overall figures for 2017, this was largely driven by the Betfair betting exchange side of the business, which grew revenue by 11%.

Investors seemingly baulked at the rising amounts of money being invested to prop up the Paddy Power brand’s market share in continential Europe.

That brand grew revenues by 3% last year, a rate below the European market average, and lost market share.

The group spent £25m (€28m) on marketing the Paddy Power brand last year and will invest a further £20m this year, with analysts suggesting investors are nervous about just how much spend is needed to improve market share.

Overall group revenues rose 13% last year to over £1.74bn (€1.94bn), according to Paddy Power-Betfair’s latest annual results.

Ebitda earnings jumped 18% to £473m, operating profit was up 19% at £392m, and earnings per share were ahead by 20% at 398p.

“Now the Paddy Power brand is operating with an improved product, we will increase marketing spend to align with its mass market positioning and step up the retention-focused investment that we started in 2017,” said group chief executive Peter Jackson.

“At the same time, we also plan to increase our investment in international markets,” said group chief executive Peter Jackson.”

Expanding on the latter line, Mr Jackson said much of this investment will be on strengthening Paddy Power’s position in existing territories, rather than entering untapped geographical markets.

He said the group is still considering growth through acquisition in Australia, despite this week losing out on buying UK bookmaker William Hill’s operations in that country.

Local player CrownBet, through its new Canadian owner Stars Group, pipped Paddy Power-Betfair to the post for the William Hill Australia business earlier this week.

Regulatory and tax changes look set to usher in a wave of consolidation in Australia’s online betting market, with existing players needing to scale-up to offset higher taxes.

“It’s inevitable that some smaller players will wave the white flag and won’t be able to cope with [regulatory] changes. We will look at bolt-on opportunities and will be disciplined in any price we pay, but we don’t need to do deals,” said Mr Jackson.

Paddy Power-Betfair leads the growing online betting market in Australia, via its Sportsbet subsidiary, which grew revenue last year by 21% to £404m.

“Sportsbet is in a good position to withstand increased taxes and benefit from any market consolidation,” said the group.

US revenue grew by 15% to £109m and Mr Jackson said the group — which is active in online horse racing, casino, and fantasy sports betting there — is well placed for any further loosening of the betting market there.

Online revenues grew 5% to £898m, meanwhile, and retail revenue grew by 13% to £334m.

However, while trading since the turn of the year has been good with sports results favouring bookmakers, a sustained period of such results has “significantly affected” customer activity, said the group, with a reduction in the recycling of customer winnings one result.

 

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