Morgan Stanley has described Paddy Power Betfair plc (LON:PPB) as a “high quality company with strong technology and a robust balance sheet”, nonetheless, the investment bank downgraded the bookmaker.
The rating moves to ‘underweight’, with a £75 per share price target which suggests some 14% downside to the current price of £87.10.
READ: Paddy Power Betfair raises full-year guidance after strong third quarter
Analysts reckon the market is expecting a “significant acceleration” in the group’s online revenue growth following the integration of the two formerly separate gambling businesses though, according to Morgan Stanley, the acceleration may not materialise.
“We see few silver linings from regulatory changes in Australia (and the 15% EPS hit not fully in consensus), and the company needs to address some major strategic issues (which may also limit balance sheet redeployment).
“These could all put pressure on the stock's premium valuation, and we see better returns elsewhere.”
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Ladbrokes Coral Plc (LON:LAD), which is also navigating a post-merger integration, is seemingly not deemed to be in favour with Morgan Stanley has also been downgraded.
Morgan Stanley moves its rating to ‘equal weight’ from ‘overweight’, with the price target adjusted to 198p from 200p.