A £22mln boost from the World Cup helped Paddy Power Betfair plc (LON:PPB) deliver double-digit revenue growth in the third quarter.
The UK bookmaker said it benefitted from a “good conclusion” to the football tournament, which was eventually won by France.
Earnings guidance lifted slightly
“Customer-friendly sports results” in Australia curtailed growth somewhat, but Paddy Power still reported a 10% rise in revenue to £483mln in the three months ended September 30 (Q3 17: ££440mln).
But £4mln worth of start-up losses related to its recent acquisition of US fantasy sports firm FanDuel and an extra £2mln in betting taxes dented profits.
For the three-month period, underlying earnings (EBITDA) fell 16% to £101mln (Q3 17: £121mln).
Despite the dip in profitability, Paddy Power Betfair lifted its full-year guidance slightly and now expects underlying earnings to be between £465-480mln, up from its previous forecast range of £460-480mln.
‘Good quarter’ says boss
“Q3 was a good quarter for the group,” said chief executive Peter Jackson.
“In Europe, the encouraging momentum that we saw in Q2 accelerated further, with online revenue up 15%.
“This momentum, which was evident in both Paddy Power and Betfair, is driven by enhancements in product and good execution in promotions and marketing.”
Big regulatory changes
Jackson did note “significant” regulatory headwinds which are due to come into force next year.
Betting taxes in Ireland are due to be hiked from January 1, while from next October, the UK government will limit the amount punters can gamble on fixed-odds betting terminals, the in-store gaming machines which have been dubbed the ‘crack cocaine of gambling’.
On top of that, Chancellor Philip Hammond confirmed on Monday that offshore betting companies operating in the UK would be hit with a higher tax bill.
“Had [these changes] applied throughout 2018, we estimate that the gross impact on EBITDA from the combination of regulatory, tax & product fee changes in the UK, Australia and Ireland would have been approximately £115mln,” said Paddy Power.
US an ‘exciting opportunity’
Despite the expensive early costs associated with FanDuel, analysts still believe the new addition will open up a huge and potentially very lucrative market for Paddy Power.
“The US market arguably remains the most exciting part of the business given the scale of the opportunity with legalised sports betting,” said AJ Bell investment director Russ Mould.
“Paddy Power’s acquisition of FanDuel earlier this year is proving to be a clever move as it provides a ready-made audience of people betting on sports, albeit from a fantasy level.
“It is pinning its hopes on cross-selling legal sports betting to this customer base as and when more US states allow it.”
After surging at the open, shares settled down in mid-morning trade, up 0.6% to 6,950p.
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