Paddy Power Betfair plc (LON:PPB) saw revenues almost double last year thanks to the merger that brought the two bookmakers together, although the same £7bn transaction also weighed on the group’s bottom line.
Total revenues for the year to 31 December 2016 – which include an 11 month contribution from Betfair – increased 89% year-on-year to £1.5bn (2015: £794mln).
The merger between the two companies, completed on 2 February, came at a cost though, with the enlarged group forking out £116mln in cash expenses.
As a result, operating profits slumped to £15mln from £125mln a year earlier, while the costs also forced PPB to slip into the red and post a loss of £5.7mln for the period.
The bookie made a statutory loss per share of 7.2p in 2016, compared to a 239.9p profit in 2015.
Despite the loss for the year, the gaming firm was bullish about future performance as it handed back another 113p a share to investors, taking the Total dividend for the year to 165p.
“2016 was a transformational year for Paddy Power Betfair with much of the integration of the businesses completed sooner and more efficiently than expected,” said chief executive Breon Corcoran.
“We have created a business with considerable scale that is stronger and better able to compete than either of the individual legacy companies. The group is well positioned to deliver sustainable, profitable growth.”
Paddy Power was also hit by the ‘worst Cheltenham ever’ when several favourites stormed to victory, although this was marginally offset by a strong Euro 2016 Championships.
“Customer friendly football results” towards the end of the year weren’t quite the Christmas present shareholders had hoped for, depressing the company’s winnings for 2016.
With the rollercoaster ride of sporting results, Paddy Power Betfair said revenues from its sports gambling business were “marginally lower than our normal expectations”.
Paddy Power told investors that trading so far in 2017 has been in-line with expectations, with sportsbook stakes across the group up 12% at constant currency.
Much of that growth is coming from Australia, which has seen sportsbook stakes increase by 19% in the year to date.
What the City is saying
Liberum’s Jason Holden has reiterated his ‘hold’ recommendation for Paddy Power and also repeated his £88.08 target price.
The analyst said: “After a disappointing fourth quarter, the comment that current trading is ‘in line with expectations’ will lend some reassurance.
“However, the lack of a comment on gaming will be a focus and it seems likely that operational challenges will continue around the performance of cross-sell to sports customers and the investment required to stimulate growth.”
Shares were down £3.10, or 3.5%, to £84.75 in early deals.
--Updates for background information, broker comment and share price--